While the impending changes brought about by the retail distribution review may have accelerated a certain number of advisers’ plans for early exit or retirement, exit for whatever reason is of course nothing new and succession planning or effective exit strategies are a well-trodden route in our industry.
For IFAs who are considering, or have decided to exit the industry there is plenty of experience and help for them to draw upon, to guide them through the options and even introduce them to a prospective buyer.
Advisers with no obvious successor to take on their practice and clients will be looking at a sale in the open market and this is where the plethora of support choices may become a bit daunting. As well as obviously obtaining a fair price for their business, most IFAs’ key priority is the ongoing service of their clients. For many, they have spent a lifetime doing their best for them and often developed personal friendships and this is where selling becomes a much more emotive issue and finding the right buyer can be more about who will continue to offer their clients a first class service.
First and foremost, go back to basics. In finding a purchaser there is initially no substitute for the age old practice of networking. Principals should speak to peers and colleagues and let it be known that they are considering selling their practice. If they do not have a finger on the pulse of the local market, then they need to make the effort to get out there and develop a feel for the opportunities that may be available.
For firms who are network members or buy support services, they have an obvious first port of call when it comes to looking for appropriate support for selling their business. Most partners should offer some form of acquisitions and introducer programme and the benefit here is often that they should be able to work with advisers on a longer-term strategy to build real capital value into their practice as well as find the right buyer. With the appointed representative relationship particularly, the network will have an in-depth knowledge of the seller’s business mix, recurring income stream and turnover as well as the less tangible things such as the firm’s ethos and business style, which in the manner of a dating agency will all help them identify compatible “suitors”.
A good acquisitions service should ask the seller to consider a number of factors around the sale. It may sound an obvious question, but in the first instance a principal will need to be clear about what they are selling – is it the business or the client bank? Are they expecting the buyer to take liability for past advice and clawback? Many buyers understandably do not want to take on this liability and the service should then be able to advise them about professional indemnity run-off cover, novation agreements and sale purchase agreements. In terms of valuation, the service should also be able to offer guidance in terms of their experience of past sales and market averages, although valuations would usually be obtained independently from an accountant. They should also be able to advise on the mechanism for the deal – for tax reasons it can sometimes be better to spread the payments over a period of time rather than in one lump-sum - and here, they can share experience of what has worked well in the past.
