I Own My Book

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Aug 8, 2006 6:18 pm
NASD Newbie:

Suppose you were going to buy my book?


Can't buy what isn't for sale - or doesn't exist.

Aug 8, 2006 6:27 pm

As an owner you get to decide who you bring in as a partner to take over, and assure that the clients will experience a smooth transition, as opposed to a firm that needs to meet hiring objectives and is more interested in a warm body than the "right" body.

Aug 8, 2006 6:34 pm
CIBforeveryone:

As an owner you get to decide who you bring in as a partner to take over, and assure that the clients will experience a smooth transition, as opposed to a firm that needs to meet hiring objectives and is more interested in a warm body than the "right" body.



That's right.  You don't just pick anyone to sell your business to and you don't decide to sell until you have had some time to evaluate that person.  I would want to work for a year with and evaluate the prospective buyer before settling down to details: just as the prospective buyer would like to get to know me and my business before committing.  You might find out that the person you hoped to bring on to the business is a flake, incompetent or worse.


Selling your book of clients, most of whom you have had relationships with for years, is similar to seeing your child get married.  You want to be assured that the relationship is a good one so you can let go and feel confident that everyone will be treated right.

Aug 8, 2006 6:41 pm
babbling looney:

That's right.  You don't just pick anyone to sell your business to and you don't decide to sell until you have had some time to evaluate that person.  I would want to work for a year with and evaluate the prospective buyer before settling down to details: just as the prospective buyer would like to get to know me and my business before committing.  You might find out that the person you hoped to bring on to the business is a flake, incompetent or worse.


Selling your book of clients, most of whom you have had relationships with for years, is similar to seeing your child get married.  You want to be assured that the relationship is a good one so you can let go and feel confident that everyone will be treated right.



Do you suppose you'll have your pick of all sorts of qualified buyers?


As a former lender you probably have experience with this sort of stuff--what do dentists who want to retire do with their patients?


Would you just accept a letter from Dr. Jones saying that he was selling his practice to Dr. Smith as a reason to let Dr. Smith inject you with Novocaine and drill away?

Aug 8, 2006 7:00 pm
moleary:

I think the main difference would be how it is laid out in the contract.  If one says that the rep owns the clients, then they truly own their book.  If it says that the firm owns the clients, then they don't.


Not that difficult.



Correct.  But NASD has a brain the size of a pin.

Aug 8, 2006 7:09 pm

As a former lender you probably have experience with this sort of stuff--what do dentists who want to retire do with their patients?


Same thing as in my insurance agency scenario, with the exception that the time frame is usually much shorter.  They bring in an associate, introduce them to patients over a year or so. Some of the Doctors that I have had as Bank clients would gradually take longer and longer vacations so the patients go used to the "new" Doctor or Dentist being in the office.


Naturally some business will be lost as patients may decide to transfer to another practice.  That is a given and certainly shouldn't be a surprise to anyone.  When the outgoing dentist makes a concerted effort to bring on a compatible person and then sell that person to the patients the transition is usually painless and most of the business will be retained.  Unless there is a huge difference in practicing style or personality issues with the patients, most will be retained.  People do not like to make more changes than necessary.


As a lender, however I would not be inclined to give the new Doctor the same credit line as the other until the practice had been fully transitioned for at least 1 to 2 years to show the same or even improved income level.  Remember, I am talking about a retiring and probably tired older person passing the business to an eager, more active and aggressive younger business owner. Credit would be predicated on the actual financial status of the new Dr as well as actual income/cashflow after expenses.  


These concepts are no different than selling a plumbing contractor's business or an accountancy CPA firm or selling my practice as a financial advisor.   You are making this much too difficult.   But then.....that is what you like to do.

Aug 8, 2006 8:47 pm
babbling looney:

These concepts are no different than selling a plumbing contractor's business or an accountancy CPA firm or selling my practice as a financial advisor.   You are making this much too difficult.   But then.....that is what you like to do.



Obviously I disagree, it's my role in life to be the Devil's advocate.


I think you cheapen your skills if you suggest that it can be valued as a plumbing contractor.  There is nothing in common other than the fickleness of the customers.


A financial advisory practice is a bit like an accouting practice, but most clients of an accounting firm feel that changing accountants will be a very difficult, that is not true for financial advisors which are all over the place.


It's the nature of the business to develop clientele that is older--so as the advisor ages his clients are dying.  This means that when you're 60 to 65 yourself your book will be much smaller than it was ten years earlier.


Should you retire when you're, say, 55 and your book is at it's high water mark?  Perhaps, but most people make most of their major income in those years--plus if you retire early you have to have a lot more money set aside and for many people they have just gotten out from under the crush of mortgages and educating children.


My point in this discussion is to stimulate the thought that the idea of selling your book may not be as lucrative as you think and that it is probably best to give it almost zero value in your financial planning for retirement.

Aug 8, 2006 10:45 pm
NASD Newbie:
babbling looney:

These concepts are no different than selling a plumbing contractor's business or an accountancy CPA firm or selling my practice as a financial advisor.   You are making this much too difficult.   But then.....that is what you like to do.


Obviously I disagree, it's my role in life to be the Devil's advocate.

Is that what the kids are calling it these days?


I think you cheapen your skills if you suggest that it can be valued as a plumbing contractor.  There is nothing in common other than the fickleness of the customers.


A financial advisory practice is a bit like an accouting practice, but most clients of an accounting firm feel that changing accountants will be a very difficult, that is not true for financial advisors which are all over the place.


It's the nature of the business to develop clientele that is older--so as the advisor ages his clients are dying.  This means that when you're 60 to 65 yourself your book will be much smaller than it was ten years earlier.

Based upon the faulty assumption that at some point in one's careers an advisor simply stops adding new clients and relationships.....


Should you retire when you're, say, 55 and your book is at it's high water mark?  Perhaps, but most people make most of their major income in those years--plus if you retire early you have to have a lot more money set aside and for many people they have just gotten out from under the crush of mortgages and educating children.


My point in this discussion is to stimulate the thought that the idea of selling your book may not be as lucrative as you think and that it is probably best to give it almost zero value in your financial planning for retirement.

Selling my book is nowhere near as valuable as the indy recruiters would like me to think, no doubt.  It is, however, going to be substantially more profitable and feasible then selling my book(which is not really mine) in a wirehouse.  Also far more enjoyable than selling my soul to a wirehouse sales manager, and flawed wirehouse research.

No, the point of your discussion is not to stimulate thought.  Rather it's yet another attempt to demonstrate your purportedly superior intellect.  Tragically, or perhaps ironically, you've managed to once again prove yourself to have more chutzpah than actual knowledge.  At least you are admirably consistent.


Oh and thanks so much for the financial planning advice.  I didn't realize that you were an expert in that field too!  I'll add it to the list.


Aug 9, 2006 8:27 am

The reality is there does come a point where you stop adding clients--hell Joeboy that's what you talk about as the chief reason you want to be independent--so you can slow down and play golf, no sales manager looking over your shoulder and so forth.


You're the classic model of the slacker who is eagerly waiting for the day to come when he can goof off all the time instead of most of the time.


Then you wind up with the flourish of saying that you know your book is really not all that valuable as an asset that can be sold--yet you talk about how great it is that you own  your book.  Which is it?

Aug 9, 2006 9:03 am
NASD Newbie:

The reality is there does come a point where you stop adding clients--hell Joeboy that's what you talk about as the chief reason you want to be independent--so you can slow down and play golf, no sales manager looking over your shoulder and so forth.


You're the classic model of the slacker who is eagerly waiting for the day to come when he can goof off all the time instead of most of the time.


Then you wind up with the flourish of saying that you know your book is really not all that valuable as an asset that can be sold--yet you talk about how great it is that you own  your book.  Which is it?



It amuses me to no end that you think you know me and my internal motivations so well.  Typical for you and your irrepressible sense of omniscience.

Find and quote a post where I said I went independent because I wanted to stop adding clients, to slow down and play more golf.  Go ahead, you have plenty of time to search once you're done reading the "Journal" for the day.  After all, you no longer spend your days gainfully employed writing memos, creating policies, and generally torturing revenue-producing financial advisors.

Actually I do goof off whenever I can fit it in.  I think it's good for the soul, and important as a parent to find time to play with your kids.  However, I went indy so I would have MORE freedom to ADD clients, quite the opposite of your boldly stated thesis.  Too, I wanted to be able to enjoy my work again, free from time wasted sitting in meetings with bureaucratic losers like you droning on about their useless projects.

I said that I expect my book would not be as readily salable as the recruiters would have me believe.  I also stated that it would still be easier and more profitable to sell than at a wirehouse.  You left that part out because it's inconvenient to your underlying agenda. Now how is being inconsistent?  Either way, it IS great to own my own business as opposed to being an employee.

Much better than being tied to the battle cry of serfs like yourself :  "Hey Joe Broker, be innovative and entrepreneurial, as long as I like how you do it!"

Aug 9, 2006 9:23 am
joeboy:



It amuses me to no end that you think you know me and my internal motivations so well.  Typical for you and your irrepressible sense of omniscience.



Joeboy, I've been watching brokers come and go for close to thirty years--I don't have to know your name to know who you are.


You were washing out at UBS so you played the only card left in your hand, go indy.  As somebody else has posted on this forum, it's the only thing you can do when you can't get your production above $200,000.


joeboy:



Find and quote a post where I said I went independent because I wanted to stop adding clients, to slow down and play more golf.  Go ahead, you have plenty of time to search once you're done reading the "Journal" for the day.  After all, you no longer spend your days gainfully employed writing memos, creating policies, and generally torturing revenue-producing financial advisors.

Actually I do goof off whenever I can fit it in.  I think it's good for the soul, and important as a parent to find time to play with your kids.  However, I went indy so I would have MORE freedom to ADD clients, quite the opposite of your boldly stated thesis.  Too, I wanted to be able to enjoy my work again, free from time wasted sitting in meetings with bureaucratic losers like you droning on about their useless projects.



You have never said you want to stop adding clients, but if you slow down and play more golf it follows that you will not be working at adding clients.


Additionally, if you're going to sell your book you're going to have to bring on an associate to get to know your existing clients.  By definition you will step back and allow that younger associate to open the new accounts as their own.


Meanwhile your longer term clients will be dying off.  It is possible that after the year or two that you associate with the intended buyer of your book there is virtually nothing left to buy.


As for being asked to attend meetings at UBS.  I've been around for a long time, I dare say that you attended less than one meeting a month, other than a ten minute gathering on Monday mornings.


joeboy:

I said that I expect my book would not be as readily salable as the recruiters would have me believe.  I also stated that it would still be easier and more profitable to sell than at a wirehouse.  You left that part out because it's inconvenient to your underlying agenda. Now how is being inconsistent?  Either way, it IS great to own my own business as opposed to being an employee.

Much better than being tied to the battle cry of serfs like yourself :  "Hey Joe Broker, be innovative and entrepreneurial, as long as I like how you do it!"
 


There is not a manager around who demands that you be innovative and entrepreneurial in their style--what is demanded is that you do it in your own style, but that you do it.


You're a slacker Joeboy and without the evil manager to kick you in the butt you're going to end up sitting down and watching the world go by--pretending that you're just spending valuable time with you kids.


The mere fact that you find time every day to comment on this forum is evidence of that truth.  You should be working so hard that you feel guilty about not having time for your wife and kids.


As I said at the top, I've been watching brokers come and go since the 1970s--you should pay attention to what I'm saying, I very well may be the best career coach you'll ever have.

Aug 9, 2006 10:39 am

NASD,


You are incorrect.  There are many ways a book can be transitioned to another owner and the "seller" can be amply compensated.  It can be to a family member, partner, another broker in your office..etc. 


To assume that one could just get a check for two times gross and walk away in a simple transaction is not feasible.

Aug 9, 2006 10:44 am

Oh  Newbie you  really are funny!  Ironic you should comment on how much time I "seem" to have to post on this forum.  I probably spend too much time here, but a very small amount of time compared to that which I spend on my work and with my family.

"I've been watching brokers come and go since the 1970's....listen to me....blah blah blah."

So what.  That merely means that you're an arrogant old gasbag.  I've been watching football for 30 years, but that doesn't mean I have a clue what the best way is to score a touchdown when you're 4th and long on the other team's 20.

Thanks for all your help, coach!

Aug 9, 2006 10:54 am
zacko:

NASD,


You are incorrect.  There are many ways a book can be transitioned to another owner and the "seller" can be amply compensated.  It can be to a family member, partner, another broker in your office..etc. 


To assume that one could just get a check for two times gross and walk away in a simple transaction is not feasible.



I know that--what I'm asking is how do you value what you'd be willing to pay?

Aug 9, 2006 11:17 am
joedabrkr:



So what.  That merely means that you're an arrogant old gasbag.  I've been watching football for 30 years, but that doesn't mean I have a clue what the best way is to score a touchdown when you're 4th and long on the other team's 20.


Don't have a clue?  Why not?

Aug 9, 2006 1:45 pm

You already know the standard on what a book "might be worth".   I think the wirehouses set somewhat of a standard when they buy brokers for 1/1.5 times gross.  That's probably about right when you throw all the intangibles in.


My argument is why would one ever really sell?  Just work less and make close to the same money.  In a quality fee based business that's doing lets say 700k in gross.  Let's say the advisor is making 400k after covering all expenses.  Let's say he gets 1 million for the book and invests that money earning 6%.  That's 60k.  I'd rather cut my hours way back--have some good people in my office and make 250k instead of the 400k.  You still have the business and the relationships with only your best clients and recieve a very nice income. 


In other words..too many young (and often successful) brokers talk about selling their book as if they plan on selling in the next few years.  The reality is that you can spend the greater portion of a career in creating a very solid income stream that while servicing your clients can still provide you with a very good living/semi-retirement.  I'd look at selling as a LAST resort and even a negative as the sellers income will almost certainly decline markedly over the coming years after the sale.


That's my take.


Aug 9, 2006 1:57 pm
zacko:

You already know the standard on what a book "might be worth".   I think the wirehouses set somewhat of a standard when they buy brokers for 1/1.5 times gross.  That's probably about right when you throw all the intangibles in.


My argument is why would one ever really sell?  Just work less and make close to the same money.  In a quality fee based business that's doing lets say 700k in gross.  Let's say the advisor is making 400k after covering all expenses.  Let's say he gets 1 million for the book and invests that money earning 6%.  That's 60k.  I'd rather cut my hours way back--have some good people in my office and make 250k instead of the 400k.  You still have the business and the relationships with only your best clients and recieve a very nice income. 


In other words..too many young (and often successful) brokers talk about selling their book as if they plan on selling in the next few years.  The reality is that you can spend the greater portion of a career in creating a very solid income stream that while servicing your clients can still provide you with a very good living/semi-retirement.  I'd look at selling as a LAST resort and even a negative as the sellers income will almost certainly decline markedly over the coming years after the sale.


That's my take.



A good take.


I think the reason a wirehouse will reward a retiring broker with 1.5 times trailing gross is becuase they are in a far better position to hold the book.


The client is already comfortable with the B/D and will naturally assume that the firm's management is going to hand them off to a qualified replacement.


In the Indy channel some guy named Jim Jones who owns Jones Financial Planning and Dating Service, Inc. is going to try to hand the client off to a guy named Tom Brown who is starting a firm called Brown Financial Planning and Maids in a Hurry, Inc.


It's that lack of credibilty that is going to make that transition almost impossible--the clients are going to think they don't know Tom Brown from Adam and pick up the phone and call Merrill Lynch.

Aug 9, 2006 2:44 pm

Extreme example you give...but I'll agree.  When you sell an indy practice, it must be so much more than a handoff.  It should be a lengthy process that involves both thee the seller and the buyer and the clients.  Making and keeping the clients comfortable is the absolute key in my view

Aug 9, 2006 3:00 pm
zacko:

Extreme example you give...but I'll agree.  When you sell an indy practice, it must be so much more than a handoff.  It should be a lengthy process that involves both thee the seller and the buyer and the clients.  Making and keeping the clients comfortable is the absolute key in my view



Again there is very little history of this having been done--especially succesfully.


I cannot imagine being comfortable with being urged to accept somebody else's choice to be my financial advisor.


If you've done a decent job of educating me and keeping me informed it's going to be a very hard sell for me to simply accept your choice for me to consider to be my new advisor.


I think what I'd do is use the break as a logical reason to search out new ideas--almost regardless of how well you had done.


In a wirehouse the BOM can contact me, introduce themselves and invite me in for a chat.  At that chat will be my retiring broker and the manager.  It could go on for half an hour and the manager could ask me if I know any of the other brokers in the office who I would like to handle my account after my broker retires--if I don't he could simply say that he will handle it himself for a month or two and then, after getting a chance to "study" my situation he could make a suggestion.


The benefits to a wirehouse are so many--and the negatives are so meaningless.  Having to go to meetings--OK, so what?

Aug 9, 2006 4:32 pm

  Do you have anything to support that or is that just your assumption?  Do law firms ever get sold? What about CPA firms? I never hear of those transactions, so do they happen?


  Why do you think you would do this when an independent advisor leaves but not when a wirehouse advisor leaves?  Does the branch manager know you and your goals, or does he just want to keep your assets in his branch?  Do you think most affluent investors trust a wirehouse branch manager? 


I look forward to your input.