Practice Management

Financial advisers need not plan their exits alone

Independent broker-dealers stand out by offering more services, including succession planning

Apr 28, 2015 @ 2:03 pm

By Jodie Papike

The past several years I have heard the same story from hundreds of advisers, all 55 and older, all concerned that they don't have a plan in place for the future of their practices. While it's no surprise that advisers procrastinate about putting a succession plan in place, I find it's something that takes a tremendous amount of time and focus to get right. Until recently, there weren't many resources for advisers faced with the issue of planning their exit strategy. What many advisers don't know is that broker-dealers are now actively involved in this process.

The competition surrounding the financial advice business and the desire by independent broker-dealers to remain relevant and competitive have pushed many firms to invest in areas that benefit advisers. Several firms are now committed to providing resources that in the past were not supported by independent broker-dealers, and one area that has received tremendous focus is succession planning. As aging advisers struggle to secure a succession plan, more and more firms are taking notice and doing something about it.

According to recent data from Cerulli Associates Inc., almost one-third of all advisers are now between the ages of 55 and 64. The shift in advisers' average age has put the issue of retirement front and center. Firms now are faced with the reality that if they do not take the initiative with their aging advisers by developing resources to help them secure their future, those assets eventually will leave their firms. As a result, there are broker-dealers that are assisting in major components of the planning process. Here are three of the most important steps some firms now are getting involved in.

The valuation of a practice. In the past, advisers had to look to outside sources and pay out of their own pocket to have the value of their practice assessed. Some broker-dealers now have experts who will come in and make a detailed assessment of what a practice is worth. They will analyze everything from product mix, recurring versus non-recurring revenue and historical revenue to average client age and tenure, and come back with a value range. Advisers get a clear value on their practice without having to rely on their own resources to do so.

The selection of a successor. Finding a buyer that is in the right geographical location and that has the financial means to buy a practice are important steps in the vetting process. Even more important is the assessment of the cultural fit. Finding someone with a similar philosophy toward the business and a consistent approach to client interaction is invaluable when choosing someone who will take over. Various broker-dealers now can help with this.


Larger firms obviously have an advantage when it comes to this step as they have a larger pool of advisers who may be interested. But even if a broker-dealer doesn't have someone who is a perfect fit, it may be willing to do an extensive search for an adviser outside of the firm. Broker-dealers can narrow the field and solicit advisers, giving an adviser the ability to choose from more than one interested buyer.

Financing the purchase. This has become extremely helpful in acquisitions where there is a large upfront component. Many suitors won't have the resources to purchase a practice without help from their broker-dealer as financing from outside sources can be difficult to secure. The broker-dealer's assistance gives advisers the ability to secure the price they are looking for, while making the funding possible for potential buyers.

Building a successful practice takes an incredible amount of time and energy. The blood, sweat and tears that it takes to nurture a book of business make financial advisers extremely passionate and protective of what they have built. While the thought of someone taking over that practice is not necessarily appealing, it is a process that is more successful when thoroughly thought out with careful preparation and planning.

With the resources available at the more robust broker-dealers, it is a burden you don't have to face alone. If these resources are not being offered to you, ask why.

Jodie Papike is the executive vice president of Cross-Search, a third-party, independent-broker-dealer recruiting firm that connects advisers with broker-dealers.


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