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Minimizing Client Defections During Your Payout Period: Part 2

Buyers and sellers both should take an active role in identifying and mitigating client retention risks.

Assessing the suitability of a buyer for your wealth management practice and negotiating the terms of the transaction are merely a seller’s early steps in “monetizing” the value of the business.

In the first article in this series, I examined the inherent fragility in post-merger projections, which many advisors, naively, take at face value. Every prospective buyer will present its own unique set of risks to the future success of the merger.  It will serve the seller’s interest to create a list of possible risks to a transaction that may arise from buyer actions during the payout period and then design seller protections should the risks migrate from hypothetical to reality.

In this installment, I’ll address some of the more active steps both buyers and sellers can take to manage some of these risks and retain clients during a transition.


Seeing to it that the initial flurry of paperwork needed to transition client accounts is handled rapidly and professionally is extremely important for first impressions. The volume of client-related paperwork can be daunting and quite time consuming, especially in cases where clients prove to be difficult to reach resulting in a prolonged paperwork transition process.  

It’s very easy for client service people from the buyer and the seller to get in each other’s way resulting in paperwork snafus, micromanagement and crossed lines of authority.  Communication between buyer and seller onboarding teams is key.

Agree to clear lines of authority with the buyer’s onboarding team regarding who will oversee the process through its completion as well as what the roles will be for each team member.  Accountability is critical.  Not looking foolish in the eyes of clients at the outset of these new relationships is critical.


Scale is frequently achieved by substituting algorithms and model portfolios for the more intensive one-on-one decision-making process that may be practiced in a smaller boutique firm. It would be a mistake to assume that all the seller’s clients will be pleased to learn that higher levels of automation have replaced the more personalized approach that may have been utilized by the seller.

I discovered with my merger experience, for example, that several of my former clients didn’t share my satisfaction with the buyer’s higher level of portfolio operational efficiency.  Instead, some became alarmed because their trusted advisor had merged into the faceless, impersonal “Corporation.” Particularly concerning was a fear that automation of the investment processes would cause clients to lose their voice within the new advisor’s organization.

Sellers should consider the psychological discomfort that the size of the buyer might have on client trust going forward. Sellers should give thought in the merger negotiation process as to how the size of the buyer in terms of AUM should impact the seller’s ultimate payout period.               

Arbitrary Transition Timeframes

In our initial negotiations I had agreed with the buyer to a 12-month transition period for repositioning all client assets into agreed upon buyer model portfolios.  It soon became evident that this arbitrary timeframe was wildly optimistic, particularly with respect to taxable accounts. Our long bull market, then in its eighth year, had resulted in significant unrealized long-term gains in many client accounts.  Holding to a 12-month conversion schedule in these accounts would have angered clients via the creation of exceptionally large tax liabilities and jeopardized many relationships with the new firm while these relationships were still in their formative stages. 

As this situation was unfolding, the thought that continuously played out in my mind was that my clients did not ask to have this acquiring firm become their new RIA. They agreed to enter new advisory relationships out of loyalty to me and as an act of faith in my judgement.  Now this loyalty was creating, amongst several clients, out-of-pocket costs in the form of significant realized capital gains simply to quickly conform to the purchaser’s model portfolios. As one client phrased her concern to me, “If there was nothing wrong with the stocks you had selected for my portfolio the day before the merger, why were they no longer suitable the day after the merger?” Another client terminated his relationship with my firm just prior to the merger upon learning that there would be some level of realized capital gains simply as a result of the merger.

One of a seller’s guiding principles should be to manage the transition in such a way as to minimize client discontent while trust in the buyer is being developed. I have come to believe that this principle can best be implemented by having the seller maintain control over each client’s portfolio conversion process, while recognizing the buyer’s objective may be to complete all portfolio restructurings by the end of the seller’s payout period or before.

Some client portfolios can be transitioned almost instantly; others may require a period of years. The seller is in the best position to make this determination on a case-by-case basis given that person’s history with and knowledge about each individual client. 

The main thread running through each of these risks, and their respective solutions, is trust. In the next installment, I’ll take a look at how to help build client trust in the buyer.

Any comments and/or questions regarding the article can be directed to me at [email protected].

Roger Sheffield, CFA, has been a portfolio manager and investment counselor since 1975. He has owned and operated his own RIA firm for most of this period and ultimately sold that firm to another RIA in 2017, at which time his firm’s assets under management were approaching $100 million. 

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