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.
Some larger distribution groups may even be able to help with funding by way of business loans for firms interested in purchasing, which in these more difficult times can help open up the number of viable buyers.
One retired IFA from Bristol who utilised his network’s acquisitions service to sell his practice and found that this helped him achieve a good match with the minimum amount of stress.
He said that the support and guidance he received was very informative and helpful throughout the sale of the practice. It took him a while to get a grasp on things but once he had explained what he was trying to achieve he found the network gave him great support and guidance on professional indemnity, network fees, levies and legal costs.
He was then introduced to suitable firms that were interested in buying his business and that, importantly, had a good fit with his objectives. Throughout the process he was provided with lots of information, facts and figures and overall, apart from one or two minor hiccups along the way, he found the process fairly stress free. Most importantly, his clients were happy with how the transfer was conducted and he received a number of compliments throughout the process which enabled him to exit his business with some peace of mind.
For firms who do not currently purchase support, or whose current partner does not offer any kind of acquisitions programme, there are also a wide range of business brokers who specialise in selling companies and matching potential purchasers and vendors. This is where advisers may need to take a bit more care in selecting a suitable partner to help them with their sale. So, given the plethora of companies out there, how can advisers make sure they select the right one?
Firstly, there are both generic business broker companies and ones who specialise in the IFA market and many advisers would intuitively have a preference for the latter, due to the specialisms of the market they operate in and the fact they may have a larger active buying population for that market.
Steve Hagues, managing director of broker business Retiring IFA believes that in terms of selecting a company to sell through, testimonials are key to getting a picture of the proposition. He said: “We have them on our website, but advisers have also asked to speak directly to others who have used our services.” He also recommends that advisers look for companies with transparent charging structures, to avoid any nasty surprises. “Our services are paid for by the buyer, not the seller and we don’t charge for due diligence or registration fees but there are numerous models out there and the important thing is to know upfront what you are paying for. There are some sharper business practices about and I am aware that some firms charge both the buyer and seller a percentage which seems a bit rich, but all this should be clear from the outset.”
Planning is everything when it comes to selling an IFA business and those prepared to do the research are more likely to select the right support mechanism to get them their ideal match and the rewards that their years of professional labour will have created. In essence, do your research, ask for testimonials and trust your own business instinct and you will not go far wrong.
Keith Richards is distribution and development director of Tenet Group
