When we look at why owner managers of advice firms want to exit or sell their business, it essentially comes down to crystallising value.

    Owners will clearly be looking at getting a value which reflects the organisation they have started, built and managed over the years.

    Yet one of the things we often find when speaking to someone considering a sale is the size of the cheque isn’t their primary concern.

    Instead, what’s always high on the agenda is the protection of their staff, their clients and their advisers. It’s about making sure they protect their stakeholders, and the human capital that powers their business.

    There are a number of drivers right now which are pushing firms to consider their options on exiting their business, including a potential sale.

    As we’re all acutely aware, working in the regulated environment has become increasingly pressurised.

    There are the well-documented issues with securing affordable professional indemnity insurance, the impact of rising levies for the Financial Services Compensation Scheme, plus complying with regulatory initiatives such as the Senior Managers and Certification Regime.

    The list goes on, but I think it’s fair to say that running an advice business, particularly a directly authorised one, is costing a lot more in time and money.

    Also, many advice business owners are likely to be aged 45 or over. Those thinking about the future are increasingly starting to think about derisking their business and making it less reliant on one person, both for themselves and their colleagues.

    Then we look at the advice sector at large. In the UK today, the number of people authorised to give advice stands at around 26,500.

    Natural attrition suggests that number might fall by 5,000 over the next five years, and by 15,000 over the next decade.

    The law of supply and demand would suggest the need for financial advice in future isn’t going to be met by that shrinking population. So when you or your firm is thinking about succession planning, it’s worth identifying early what that strategy will look like.

    The responsibility of succession planning

    The relationship between advisers and clients can go back 20 to 30 years in some instances, with advisers working with their clients’ children and grandchildren.

    To have the continuity of that relationship compromised or eroded because a sale has taken place is never a good thing, which makes early succession planning all the more important.

    Everyone who runs an advice firm needs to understand it’s their own personal responsibility to develop a succession plan. There isn't a central conduit anywhere.

    Many advisers spend years educating and encouraging their clients to take action and to have a plan B, but it’s worth considering how you might start to turn that mirror on yourself.

    As part of your succession plan, it may be the case that you’re bringing in a new adviser, or a new advising team.

    One of the first considerations here is sponsoring that relationship with your clients, and doing so well before you’ve stepped outside of the advice role yourself. Because giving advice is clearly about much more than the fact-find or what the suitability report looks like. Ultimately, it comes down to how you communicate, and how you engage with clients.

    Understanding how a potential acquirer approaches client engagement can be the differentiator between finding the right buyer and finding the wrong one. Are they looking at the client as an asset, or are they looking at their ability to maintain a relationship?

    It’s sad when you hear stories of ‘seller’s regret’ or ‘seller’s remorse’, because what it means is both parties didn’t look closely enough at the transaction.

    When you do look closely at potential deals, you can identify any challenges or hurdles ahead of time.

    Regrettably in a lot of sales, people don't really find out what the deal is going to look like until after it's been done. And in those cases, it's only a 50:50 chance that they've made the right decision.

    Preparing for a sale

    Many smaller and medium-sized advice firms tend to be owner managed, or owned by a small number of shareholders.

    It’s common for those shareholders to take on many different tasks within the business, from regulatory and compliance duties to human resources, as well as seeing clients.

    Often these are described as ‘lifestyle’ businesses – staff and clients are happy, but commercially the business exists to support the owner’s lifestyle.

    If a firm is looking to prepare itself for sale, or generally wants to present in the best way possible, the owners or management team need to understand the business it’s going to be, not the business that it was.

    It seems obvious, but anyone buying a business is only going to reap the benefits from the point at which they’ve bought it; they don’t gain from the successes that have gone before.

    With that in mind, consider what changes need to be made to structure the firm away from being a lifestyle business to a strong, viable business with clear processes and goals.

    It’s also worth having a clear view of what the business is going to look like after you’ve sold it. For example, what’s the impact going to be on your team and your colleagues?

    If you’re going to sell, a huge amount of time needs to be spent on identifying whether the buyer can sustain the business in the future.

    Clearly, a key consideration is making sure the acquirer actually has enough money to buy the firm, and that you’ve checked out their track record if they’ve carried out similar deals in the past.

    Probably the single most important thing to ask yourself is: ‘What is the client experience we have today?’ And following on from that: ‘What is the client experience going to be like after we sell?’

    If that client experience is going to be considerably different, you should check whether that's going to be palatable to your clients, your staff and your advisers.

    Advice and financial planning is a people-based business, and the biggest single benefit of buying a people-based business is the relationships that it has.

    If those relationships fracture, or are somehow compromised, the individuals involved will probably exercise their right to walk away and go elsewhere.

    Unfortunately, we've seen many occasions in the wider market where a lot of money has changed hands, and then six months down the line neither the client nor the advisers like the experience, with the result that they decide the new world is no longer for them.

    I believe all of these aspects need to be considered in equal measure to understand whether a potential transaction is sustainable.

    To use a fairly crude phrase, but an apt one nonetheless: look at the marriage, not the wedding presents.

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