5 Issues Advisors Must Consider When Selling Their Practices

Selling a practice is complicated — the topline price tag is not necessarily the most important part of the deal.  Last month, I told you about “6 Essentials to Pick the Right Buyer.” Now it’s time to get into the nitty-gritty of how to structure the deals.

I broke it down into five easy pieces for Think Advisor. Hold the chicken:

Not too long ago, a financial advisor called me to say he heard that a colleague had just sold his independent practice for a pretty penny: three times revenue. Could I get him the same deal?

Matt Brinker, senior VP of United Capital, practically rolls his eyes when he hears a story like this: “Every time I am on a panel discussing M&A in wealth management, the first question from the audience is, ‘What are the current multiples?’” Multiples are nice, but they aren’t everything. And they may, in fact, be deceptive. “Price matters, but terms trump price,” says Brinker.

In our view, a seller needs to consider five components in a deal; they are interrelated. If you get more in Column A, you may get less in Column B. That means sellers need to prioritize what matters most.

A deal with a topline of “just” two times revenues can turn out to be better than a deal that boasts three times revenues – if sellers get bigger annual payments or better tax treatment. (See box for an example.)

Here are what experts consider to be the “big five” elements to consider and the role each plays in a deal:

5 Issues Advisors Must Consider

In the next article on selling your practice, I will tell you about the experience of advisors who have sold their practices.

And for those of you who don’t remember Five Easy Pieces and the diner scene with a very, very young Jack Nicholson, enjoy this:



About Mark Elzweig

I am an executive search recruiter with an inside track on financial advisors, the asset management industry, and Wall Street. My work has appeared in numerous publications including On Wall Street,AdvisorOne, and Fund Fire. Journalists regularly seek me out, so you catch my bon mots in The Wall Street Journal, Research Magazine, Reuters, and more. You can follow me on Twitter @elzweig or you can reach me directly at 212-685-7070 or elzweig@elzweig.com.
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