Advisers expecting a white knight to reward them for the time and effort they've spent building their practice when they're ready to retire could be sorely disappointed.
While many solo advisers might be happy treating their business as an annuity that provides them with a good lifestyle during their working lives, if they want to attract an internal or external buyer, they need to achieve scale and have growth potential.
“It's critically important to have a growth story,” David DeVoe, founder and managing partner of DeVoe & Company, an M&A consulting firm serving the wealth management industry, told advisers at the MarketCounsel conference in Las Vegas.
“The best-managed firms have a comprehensive growth strategy that covers retention of clients and employees, business referral processes, use of technology, event management and people development,” he said.
Key to implementing that strategy is the development of talented people – not always an easy task for solo practitioners. “It's amazing how many advisers don't enjoy working with people,” said Mr. DeVoe, who was formerly managing director of strategic business development at
Charles Schwab Advisor Services.
“Moving from a sole proprietorship to an ensemble practice is difficult, but having a succession plan can mitigate your risk and allow you to do the right thing for yourself and your family as well as employees and clients,” he said.
It can also dramatically increase the value of your business.
A significant consideration for advisers seeking to grow their business is the name of their firm, said Market Counsel Chief Strategist Corey Kupfer.
“To scale your business, you need to build a brand and if the firm is totally identifiable to its founders, it's more difficult to do,” he explained. “Joe Smith Advisers is not as attractive to other advisers you might want to recruit as ABC investment management is. By building a brand, you're creating intellectual property beyond your book of business.”
If attracting new partners and/or employees is a goal for advisers, they should also be consistent in how they recruit new people. “You can have tweaks to individual contracts but it gets difficult to manage if you've got 20 different deals with people,” said Mr. Kupfer.
He also suggested advisers consider developing a more formal governance structure for their firms that extends beyond themselves – including possibly forming a board. “It's tough to scale your business and implement the proper corporate policies and procedures if you're the only one making decisions,” he said.
