Buying a book (unusual circumstance)

or Register to post new content in the forum

23 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Dec 10, 2009 5:05 pm

Broker is recently deceased, book is mostly still intact.  Recurring revenue is about $50,000, I'm not sure but think that transactional is about the same. 

 
Normal pricing I believe is 2x recurring = $100,000, and 1x transactional = $50,000, for a starting price of $150,000.  I am guessing this would be a fair price if the deceased broker were around to tell his clients I am a good guy and that they should listen to me. 
 
I believe the widow wants around $75,000, some upfront pop with the rest over the next couple of years.  I have not yet made a formal offer, but have expressed my interest.  I am guessing that if I don't buy it there won't be many other offers available.  I believe that she understands this.  However, it's a small community and I need to make sure the widow isn't telling everyone I "stole" it from her either.
 
The broker is with a BD that I am not interested in, so the accounts would have to be individually transferred over, we can't just do a "change rep" at the BD level.
 
Book is pretty vanilla, lots of A share mutual funds, with some C shares, stocks and VA's mixed in.  Not many bonds, only 1 fee based account. 
 
I am thinking $50,000 (1 year's recurring income) is a fair price.  I would like input on whether I am on the right track.
 
Thanks.
Dec 10, 2009 5:12 pm

I would offer 50K, then slide to 50K plus 25 over the next few years.  I would not pay more than 25K for the transactional stuff.  Of course, there has to be a retention clause, especially with the change of BD required.  And who would pay for the transfer fees from the old BD?  That should be a deduction if you are going to reimburse them.  Also, if you will incur ticket charges to make changes, that might be a consideration.

I am not sure clients should incur ticket charges just because their advisor dies. 
 
Remember, most transactions include a transition period with the old broker helping the clients along.  You are on your own.  Big difference.
Dec 10, 2009 5:12 pm

Depends..

 
How many assets? How many accounts?
 
The hassle of ACATing everyone should drive down the price along with the idea that he isn't there to hand hold his clients over...
 
Dec 10, 2009 5:18 pm

approx $15-20mm aum

400 households
Mostly direct business, so not huge ACAT fees
Dec 10, 2009 5:34 pm
EDJ4now:

approx $15-20mm aum

400 households
Mostly direct business, so not huge ACAT fees
 
If direct business all you need is a change of b/d form... very easy..
Looks like average account is $50K..
 
If you could take half and put in fee it would be worth it..
 
Dec 10, 2009 6:00 pm
 
 
 
Dec 10, 2009 6:04 pm

400 clients??? Too many clients for the assets involved.  I'd focus on the top 20-30 accounts.  Take a close look at those.......Make the deal for that business. 



If you spent your time focusing on cultivating larger relationships I think you'd end up with a lot more AUM and revenue....
Dec 10, 2009 6:34 pm

That's a good point, and I will probably cherry pick which accounts we try to take over.   It probably isn't realistic to target 20-30, probably more like 100-150. 

 
I'm not in an area where I can turn up my nose at accounts without $100,000, if I did I wouldn't have very many accounts. 
Dec 10, 2009 6:47 pm

If she's asking 75k, I like the idea of respecting that maximum and offering 50 with a lookback clause.

 
Let's see, if you bring ten million and wrap it ( tell them that's their option with you) at an average of 1.25%, and net .66 after haircuts before local expenses,  you're making $83,000k per year.
 
Whatever else makes it as gravy. Why would anyone move as just A shares? You could blow out the nonsurrend Va's (taxable event less likely now) and make them real clients for life.
 
Charge a bigger wrap fee for smaller accounts, and less for big.
Dec 10, 2009 7:04 pm

I could be very wrong but... if she is not licensed, she cannot sell the book.  You are simply buying a list of clients without a broker.  Check with your compliance dept before you go any further as I don't think you can pay her anything without risking your own license.

Dec 10, 2009 7:11 pm

Primo - I'm aware of the issue.  I think there is some allowable exception for an estate, but I don't know the details.  The BD's attorney is involved to make sure it gets set up correctly.  How exactly we are going to do it, I'm not sure.  If anyone has done this before, I would love input on that issue as well. 

Dec 10, 2009 8:02 pm

Couple of things.  Normally you can count on 15-20% attrition.  With the BD switch and no broker to grease the skids, yours will be far higher.  Second, the figures being thrown around are far too high in normal circumstances.  Take current production, multiply by .8 to adjust for attrition (may want to adjust this number in this circumstance), and figure out what it would take to pay off in 3 years and 5 years pre-tax net @25%.  There is your price range.

 
Example:  $100k gross x .8= $80k@(your payout, let's assume 50%)=$40k x .25= $10k.  Your range should be $30k to $50k IMO.  Paying $150k for a book doing $100k is outrageous.  Assume you can grow the book enough to cover attrition (very hard to do in the short term).  At 50% payout, you are going to work for free for 4 years taking taxes (25%) into account.  You can build another $100k in production in 4 years and get paid on it to boot.  Hope this helps.
Dec 10, 2009 8:35 pm

Primo, interesting. If he moves and keeps 10 million, average trail GDC might be fifty thousand.

 
I don't know about the market in  that community, but 1x trail is pretty low (according to FP Transitions). The widow feels screwed.
Dec 11, 2009 10:43 pm

Are you sure the deceased broker dealer will let you buy this book?  They didn't assign the accounts to a broker already?  You may not be able to pull much if that's the case.  You may only pull a few million if they never met you, the decease can't give you an introduction and you are asking them to change firms, thats basically a warm cold call in my opinion.  You you do this you need to have a contract written up paying for what you can bring over, not what the guy did before he passed. 

Dec 11, 2009 11:42 pm

LA Broker,

that is exactly what I am thinking. You are not really buying a book of business here, you are buying a client list and account numbers. Many accounts could of been reassigned already, and with no broker to broker introduction.... you are fighting an uphill battle. Worse than trying to solicit business from assigned accounts.

Dec 12, 2009 6:26 pm

LA Broker and aeromaks:

 
I can't really give the details on a public forum without outing myself, but that shouldn't be an issue.   I obviously would be far better off if I got the introduction from the deceased broker, but I'm not concerned that another broker will be working the book.  I do appreciate you raising the issue though, and I'm sure there are others that I haven't considered yet. 
Dec 12, 2009 7:08 pm
EDJ4now:

LA Broker and aeromaks:

 
I can't really give the details on a public forum without outing myself, but that shouldn't be an issue.   I obviously would be far better off if I got the introduction from the deceased broker, but I'm not concerned that another broker will be working the book.  I do appreciate you raising the issue though, and I'm sure there are others that I haven't considered yet. 



In that situation looks better.  In any case though, I would be very hesitant to pay for something without know the results.

You have to know ahead of time... either you are paying for a leads list, in which case price it accordingly, or....

structure a deal where you pay to the surviving spouse on the back end, based on the number of clients and assets that it comes in with.

So instead of paying 1.5 to 2 x book up front, why not offer 3x but only on the backend of the stuff that comes over.  or pay for a leads list of clients, and  then any converted, pay on the backend after they transfer to you, ie sign the acats and sign your advisory agreement.

Dec 14, 2009 9:33 am

Mak,

I think 3X is pretty steep.  You are suggesting paying more for a deceased guy's book than a living one's, simply because you are trying to be fair?  It's pretty plain and simple.  Pay the market rate for whatever comes over.  End of story.  If it's 1X fine, if it's 1.5 or 2X fine.  But 3X? And you have to do all the work of convincing clients to come move their account, pay IRA or other account closing/transfer fees, possibly some ticket charges, etc.  That just doesn't add up to me.  And I certainly wouldn't pay that for the commissioned business.  But it's all got to be based on what comes over.  That is standard procedure in any professional business (CPA, payroll business, investments, etc.).
Dec 14, 2009 1:06 pm
B24:

Mak,

I think 3X is pretty steep. You are suggesting paying more for a deceased guy's book than a living one's, simply because you are trying to be fair? It's pretty plain and simple. Pay the market rate for whatever comes over. End of story. If it's 1X fine, if it's 1.5 or 2X fine. But 3X? And you have to do all the work of convincing clients to come move their account, pay IRA or other account closing/transfer fees, possibly some ticket charges, etc. That just doesn't add up to me. And I certainly wouldn't pay that for the commissioned business. But it's all got to be based on what comes over. That is standard procedure in any professional business (CPA, payroll business, investments, etc.).

It is... but I see it this way. Instead of paying 1.5% for a large leads list... I would rather pay it on the back end, over a few years for only the clients that do come over. Ideally, yes, no more than 2%, but if it all backend... I wouldn't feel that bad.

Dec 14, 2009 1:34 pm

Mak, nobody should be paying for clients that don't come over.  There is always a retention clause.  So for example, you pay 2X for a recurring revenue book of $20mm AUM, the advisors stays on for 6 months, and you only pay 2X on the clients that stay for the next 6 months or something.  But you don't pay 3X for the ones that come over.  What if they ALL come over?  Then you just paid 3X for the whole book!!?  Better be damn good clients.  That would be like 600K for that book.  It would take you a long time to pay that off.  If you are young, it might be worth it I guess.