If you are thinking about buying a financial practice, simply asking someone if they want to sell to you is not the right way to go. In this business, the individual who is ready to sell with no questions asked may not be the person you want to buy from. Here are some things you should know before you commit to buying a practice.
The Baby Boomers Are Getting Older
Of the baby boomers who are currently running financial practices, 40% say that they plan to retire in the next few years and 20% claim that they have already identified their successors. The other 60% say that they have absolutely no plans for retirement or succession, and this gives advisors incredible opportunities. You’ll first need to be able to identify those advisors who are still unsure of the future, and then you’ll need to find ways to prove that you can handle the pressure of becoming the eventual successor.
You’ll Need to Be Deemed “Worthy”
A study conducted by the McKinsey Company and LIMRA International called “Forces of Change” showed that the primary reason why senior advisors failed to plan for their succession had to do with their inability to find a candidate who was worthy for the position. Because of this, it is safe to say that if you want to acquire a certain practice, you’ll need to prove to the senior advisor that you are worthy of taking over the practice.
You Might Need to Help the Seller Let Go
According to the same study, senior advisors are also reluctant to plan for succession due to their inability (or reluctance) to put an end to their relationships with their clients. Many financial advisors work with the same clients for many, many years – several decades, in fact – and they form more than just working relationships. It is hard for anyone to tell a trusted friend or acquaintance to trust someone else with their finances in the same way they have been trusted. Thus, in order to buy a financial practice, you’ll need to help the senior advisor find a way to say goodbye to many of his or her clients.
The Clients May Have a Hard Time Trusting You
Just as the senior advisor may have a hard time letting go of his or her client relationships, the clients may have a hard time letting go of the senior advisor. After all, this is the person who has seen them through repaying student loans, buying automobiles, starting a family, buying their first home, saving for their children’s college funds, and much, much more. These relationships are often quite intimate, and it can be hard for clients to trust you in the same way they trusted the senior advisor. To combat this, it is important to prepare the clients for the transition early and allow them to get to know you before the senior advisor officially steps down.
Buying a financial practice is not like buying a car; it is not a cut-and-dry sale. There many different things to consider if you want your succession to be a successful one. The senior advisor and the clients alike must find you worthy enough to take over the company and handle their financial lives.