Succession Planning

What's your acquisition strategy?

Key points every adviser should keep in mind when considering to buy or not to buy

Jun 8, 2014 @ 12:01 am

By Jeffrey A. Concepcion

succession planning, adviser, financial planning
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In wealth management, an increasing number of financial advisers need an exit strategy. The combination of an aging demographic and fewer entrants into the field creates both challenges and opportunities. Acquiring a new business could be the perfect way for younger advisers to catapult their business to the next level. Consider the following:

• The average age of advisers is 50, and 43% are over 55.

• Advisers over 60 control $2.3 trillion in client assets.

• By 2017, 25,000 independent advisers will be looking to leave the business.

• 70% of advisers with less than 10 years until retirement don't have an adequate succession plan in place.

Clearly, a growing number of advisers need a defined exit strategy but are short on options. Practice acquisitions can be the solution that many established advisers need.

When it comes to developing a practice acquisition strategy, there is often a divide between desire and reality. An acquisition requires having proper systems and processes in place well in advance of the actual transfer.

It's critically important to look beyond the math to make sure that chemistry and fit are aligned, as well.

Here are a few key elements to consider in your acquisition approach.

It's all about the foundation. Your existing practice represents the foundation upon which you are trying to build. If that foundation is unstable, adding a few more floors will not produce a favorable long-term outcome.

Second, there's a significant difference between “buying a book” and retaining newly acquired relationships for the long haul.

Preparation and communication are essential to ensure that the initial and ongoing experience for your new clients meets or exceeds their expectations. Otherwise, you may face unwanted attrition and pay for business that doesn't end up staying on the books.

It's not just about the numbers. Finding the right fit is often as much a matter of matching chemistry and emotion for the seller as it is about the price. Connecting with the seller's values and philosophy on asset management and planning is critical. The acquiring adviser needs to know the marketplace, and have the time and other resources necessary to execute the transaction effectively.


If you have the desire and resources to acquire a book of business, you have to be ready to hire “ahead of the curve.” In other words, you are staffing your business and implementing systems and pro-cesses based not on where your business is today but where you hope it will be down the road.

Keep in mind that doing that creates risk. If you hire more staff and invest in infrastructure, you need capital to cover those costs. If you are unsuccessful in ramping up your revenue, either organically or via acquisitions, the excess overhead may create significant financial losses.

Due diligence is the name of the game. Know what you are buying from a revenue, compliance and regulatory perspective. A thorough examination of the seller is warranted as it relates to prior and open complaints. If there are areas of concern, you can either walk away or suggest that some portion of the sale proceeds remain in escrow for a period as “tail coverage.” Items such as employment contracts, staff bonuses, and real estate and equipment leases should be reviewed to ensure there are no surprises.

Remember that change is hard. Assuming you're buying a well-run practice, minimizing change in the early stages is the best approach until you develop your own rapport and can begin to make modifications to the service experience based on the philosophies and methodologies of your own practice.

The overall success of the transition from seller to buyer is greatly enhanced when the seller is willing to stay on for a period of time post-sale. A “soft hand-off” on the relationship side helps with retention while creating less stress for the clients as the person they've confided in slowly steps out of the picture. Additional risk comes into play in cases of an abrupt departure of the seller.

If purchasing a new book of business is in your future, invest the time and energy up front to understand the seller's key motivations. Be a good listener, and find a creative solution that works for all parties. These factors go a long way in determining whether or not the acquisition will be mutually beneficial for the adviser looking to exit the industry and the growth of your business.

Jeffrey A. Concepcion is founder and chief executive of Stratos Wealth Partners.


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