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Ask Yourself These 3 Questions When Evaluating Competing Offers to Buy Your Practice

You could go with your gut, but is that the kind of advice you'd give a client facing a major life decision?

By Patrick Farrell

Choice can be a wonderful thing, but when a financial advisor is confronted with competing offers for his or her practice the decision is often fraught with complicated challenges. It can feel as though your professional legacy and financial well-being hangs in the balance.

On the surface, it seems like the choice should be simple: If all would-be purchasers are a good fit, go with the highest bid. Or if all the bids are similar, go with the best fit. And if the would-be purchasers all make similar bids and seem like a good fit, go with your gut. The reality, however, is that things rarely work out that way.

For example, even if the bids are similar, other aspects of the deal could be very different, including the amount of financing a buyer would need or their preferred terms and conditions that guide your exit. Also, going with your gut is not the kind of advice you would ever give a client facing a major life decision.

Although this is far from an exhaustive list, if you find yourself with the happy problem of evaluating competing offers, make sure to ask yourself the following three questions.

1. If you were the client, which advisor would you want handling your financial future?

Answering this question can be difficult because you probably know much more about managing money than most of your clients.

Just as your clients and prospects no doubt have done with you, take a serious look at the candidates through the lens of your own financial planning goals. Think about your family, what you want to do in retirement, the makeup of your assets, your risk tolerance and the condition of the economy. 

Don’t be afraid to conduct a mock discovery session. Putting yourself in the role of the client, you can base your judgment on how thoroughly each advisor asks questions about your life and priorities, and on how thoughtfully each answers your questions about money and investments. 

Of the advisors that might take over the practice, chances are high that one of them seems better equipped than the rest to create a customized, goals-based financial plan that suits you. All else equal, that might be the best choice for your clients. 

2. How much have you actually learned about each potential buyer?

You are not a private investigator, but when facing a tough choice between competing offers, try to learn as much as possible about the candidates. After all, once you hand over the practice, your former clients will have years to do the same, for better or worse, with whomever ends up taking over.

In addition to studying their regulatory history, any legal issues and their personal finances, you can ask them for multiple character references, ideally from both their professional and personal circles. You also have another resource at your disposal: social media. 

We are living in an age when people feel at least as comfortable sharing information about themselves online as they do in person. While one questionable Facebook or Twitter post should not necessarily take someone out of the running, it all depends on the context. If a would-be purchaser posts content that you find regrettable or even offensive, chances are your clients would feel the same way. Take that into consideration.

3. Have you asked your clients what they want out of their next financial advisor?

Ask this question of enough clients and you are bound to get conflicting and perhaps perplexing answers. But you’re also likely to get crucial insight into the traits your successor should possess. If nothing else, common elements from those client responses could either verify some of your assumptions regarding what would make a good buyer or highlight candidates that may not be such a good fit.

If a client says, “I want another advisor just like you,” it’s worth asking your clients to be more specific. It’s possible they could be flattering you. Even if those feelings are genuine, further details will provide stronger guidance for you to narrow your choice on a successor.

After you have completed the above process, if you still cannot decide, two options remain. Seek out an impartial expert such as a succession planning or M&A consultant who specializes in the independent wealth management space, to help you think through additional questions. Or, go with your gut.

Patrick Farrell is CEO of Investacorp, a Miami-based independent advisory and brokerage subsidiary firm of Ladenburg Thalmann Financial Services.

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