Sale or succession? The adviser retirement minefield

  • Learn about the options for advisers looking to exit the industry
  • Gain an understand about selling activity within the profession
  • Understand the legal aspects to consider when selling an advice firm
Sale or succession? The adviser retirement minefield

The sight of advisers considering their options at retirement resembles a busman’s holiday. But inevitably, the time will come to apply knowledge gained in the trade to their own circumstances.

Those who own advice firms face a different set of challenges to those who simply work for one, but their situations remains enviable. Once assets under management accumulate to significant levels, businesses can become attractive for prospective buyers and command a good price – not only for recurring revenues, but also the ability to generate further fees for fresh advice.

Whether the sale is abrupt or phased over number of years has historically been dependent on the adviser’s situation. Those suffering from ill health may be forced to opt for a speedy exit, whereas others are afforded more time to plan accordingly. That said, it is a scenario that will present itself to all owners at some point or other.

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And in recent times, the number of advisers looking to sell has been on the rise, prompted by reasons not solely related to natural retirement.

“We bought 13 adviser businesses in the past financial year. So far in this year it’s six,” says Steve Mee, communications manager at AFH Wealth Management, a consolidator that has grown rapidly on the back of this trend.

“We have people who come to us and stay, and others who sell to us with no intention to join – it’s just their clients that transfer to us.”

Peter Trotman, director at Vision Business Advisers, a business brokerage for the financial sector, says that it is not just older intermediaries who are looking to exit. “I’m definitely finding an increase in interest this year. I’m talking to several guys in their mid-50s who are looking to do something, whereas previously it’s been people in their mid to late 60s, if not older,” he says.

Selling success

The reasons for this are well-known: greater compliance demands, not least those that were brought about by the recent introduction of rules such as Mifid II and the packaged retail investment and insurance-based products (Priips) regulation, have changed the equation for one, two and three-man bands. 

Chart 1 shows the number of adviser firms fell between 2014 and 2016 after several years of modest growth, possibly as a result of regulatory pressures.

But selling up itself can prove a similarly complex process.

Relationships with many customers will have stretched back decades. Therefore, advisers will be keen to ensure clients are not neglected after the sale, and do not feel compelled to hunt for a new adviser and start the relationship process all over again. This desire does not always chime well with advisers’ hopes of securing a healthy price for their firm.

Sam Mabon, partner at independent legal practice Brabners, says: “Sellers commonly find themselves stuck between achieving maximum value and getting the best deal for clients and employees alike. This often results in sellers defaulting to the easier option of a management buyout to the next generation of advisers. While this is appropriate in some cases, it doesn’t always result in the best return. It can also breed resentment if shares are retained by the outgoing adviser.”