Top financial adviser Q&A: Scarsella on selling your firm

SEP 02, 2012
This Q&A first appeared in the August issue of The Adviser's Consultant, a monthly practice management newsletter from InvestmentNews. * * * Rocco Scarsella is president and chief executive at RWS Financial Group LLC and oversees an office of supervisory jurisdiction for Cambridge Investment Research Inc. He works with advisers on mergers and acquisitions. IN: When advisers reach a point when they are ready to sell their business, what are the first steps they should take? RS: You are looking at a figure for what you want to sell your business at, but you have to do an inventory of what you're trying to sell. Look at what part is an advisory or securities business and what your books are worth. A buyer wants to know where the assets are and where the clients are. From a seller's perspective, you want the highest dollar amount. So you have to look at the likely longevity of the business and its chance of succeeding. What is your revenue source? Recurring revenue has the highest value, rather than transactional. A lot of advisers have a holistic business where they provide insurance, annuities and other services. Is there any liability built into the business? For example, if you carry nontraded REITs, with all the scrutiny surrounding them, is that a positive or negative for your business? Get an idea of what you have and be able to present your business in terms of the book of business. A lot of folks have a number in their mind of what their book is worth and what they want for it. That can be problematic because if, say, $200,000 is what you want and [the buyer] says it's $100,000, you have to be somewhat realistic about it. IN: What are the challenges that advisers face once they start talking to potential buyers? RS: You have to think about the successor you want — what do you think that person should look like and be, so your clients stay? The last thing you want is to be dragged back into the business. I was talking to a guy who sold his business and walked away, but after he was gone, he started getting calls from clients, saying the guy [who succeeded him] doesn't return calls, and is hard to get in touch with and all of these other problems. So he was dragged back into it. IN: You say that advisers have to be realistic about what their book is worth, but a lot of people tend to overestimate the value of their business because it's something they've worked years at building. How do you get past that? RS: It's hard. Something that's worth a dollar to a seller might be worth about 45 or 50 cents to the buyer. Then it's a stalemate because [the seller] is just going to pout. If they can't get the value, they will just let [the firm] die slowly on the vine, until the revenue stops coming in. The more education they have about the size of the book, the better off they will be. Get your staff involved in the business so everything isn't a mystery. The staff is quite a bit smarter than people tend to give them credit for. Get them involved and build things for everybody's benefit. IN: What's important to think about when you are considering a successor in terms of looking in-house or finding an outside buyer? RS: You have to put the client first; if you don't have a client, then you don't have a business. Johnny may have been with you for a number of years, but doesn't have the personality to bring in accounts, so the business could just plateau and not grow. Or Johnny may be a rainmaker but leaves because he's offended you didn't consider him as a successor. That's why you have to bring your staff in and work out a compensation plan so they benefit from the long-term health of the firm. IN: Besides valuing your firm and finding the right successor, what is another challenge that one faces when looking to sell a firm? RS: Financing is a challenge, whether you're doing an internal succession or whether it's an outside buyer. Banks aren't exactly lending to buy a financial planning business. These things take a lot longer than people think. You may be 72 and you want to walk away now, but it can be a two- or three-year courtship before the adviser starts to reduce [his or her] exposure. A seller typically should be involved for some period of time because that in-creases the odds of the firm's retaining clients. The longer the transition, the greater the value of the business. [email protected] Twitter: @pauljmenchaca

Latest News

Five-person Raymond James team jumps to Janney in Maryland
Five-person Raymond James team jumps to Janney in Maryland

The group led by a 37-year industry veteran brings $470 million in assets to the Philadelphia-based broker dealer.

$20B Merit looks to next phase as Constellation takes minority stake
$20B Merit looks to next phase as Constellation takes minority stake

The Atlanta, Georgia-based national wealth firm revealed its new PE partner as prior backers Wealth Partners Capital Group and HGGC’s Aspire Holdings exited their investments.

$350M father-son duo hops from Osaic to Equitable Advisors
$350M father-son duo hops from Osaic to Equitable Advisors

The latest departures in Ohio mark another setback for the hybrid RIA, which is looking to "expanding its presence across all models and segments of the wealth management industry.”

Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds
Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds

The St. Louis-based real estate investment firm gives the asset management giant a valuable access point to the roughly $1 trillion net lease market.

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.