There could be an overabundance of financial advisory practices up for sale within the next 10 to 15 years, and there are concerns as to whether those businesses are standardized enough so they can be profitable to both the seller and the buyer.
According to research commissioned in 2014 by Vancouver-based Maximizer Software Inc., more than half of 900 advisors surveyed in Canada and the U.S. plan on retiring within the next 15 years. For 28% of advisors, that timeline is even shorter at 10 years — and that rises to 38% when looking solely at Canadian advisors who participated in this research.
“The large number of baby boomer advisors likely to put their practices on the market in the next 10 to 15 years makes for a crowded marketplace in [the] future,” states Maximizer’s report, entitled Building a saleable wealth management business.
Thus, most advisors will want to maximize the value of their practices to stand out among other financial advisory businesses. Putting standardized processes in place that the buying advisor can assume easily is one way to accomplish this, according to the Maximizer study. That’s because buyers want to be reassured they will not lose the clients within the acquired practice because the running of the business was so dependent on the selling advisor.
As a result, financial advisory practices should be able to stand on their own — separate from their owner or management — in the areas of client service capability and tools, record-keeping, bookkeeping and operating procedures.
“[The practice then] becomes an asset that can be acquired and operated by another party. In other words, an attractive target for purchase,” the Maximizer report states.
So, advisors looking to sell their businesses in the near future will want to be able to provide informative client profiles to buyers. This includes demographics for your client base; compliance details, such as risk tolerance and investment objectives; information communicating what is personally important to clients, such as data on family members and favourite charities; and financial planning, including financial profiles and investments.
Advisors should also be able to prove the future viability of their businesses by being able to share the number of clients who are still investing and buying new financial products and the ratio of clients that is at the drawing-down stage of their lives.
The key is recording these details through a reliable client relationship management system, through which this information can be summoned quickly and automated processes can be put in place.
However, Maximizer’s research found that 31% of advisors surveyed say that having their notes on paper and their rolodex as one of their top ways to manage client relationships, while 12% of survey participants said the main method for tracking client information is to “keep it all in my head.”
“The trouble [with these approaches] is you can’t sell what’s in your head and on some post-it notes,” the report states. “It has to be in a functional database that makes the information searchable and actionable.”