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Jan 18, 2011 7:36 pm

Looking at buying a block of clients, same b/d, same general solo office service area. Assuming it's a pretty stable revenue stream that can be serviced efficiently, how much would you pay?

Without disclosing lot of detail:

Annual GDC income (wrap, trail, some insurance, some planning fees)  (after wrap admin fees) ratio is about .0076.

That's AUM x .0076 equals GDC (before indy haircut and expenses).

Clients are not too old or too young, majority are mass affluent (250k AUM avg.).

There is a look-back to adjust the sale price if a substantial amount of AUM "falls off" after the sale.

What would you pay as a multiplier of annual trailing GDC?

Jan 18, 2011 7:38 pm

Lump sum payment, or would you make payments over time?

Jan 18, 2011 7:42 pm

Mainly over time, let's say the downpayment is 20% instead of the customary 30%. Three year payout that is not compensation to the seller, with negotiable interest rate.

Jan 18, 2011 7:44 pm

You are going to be seeing a ton of opportunities like this in the next few years, a planner with a different b/d cold called me a couple of weeks ago looking for a buyer for 30m. If you get the #s and staffing right (the hard part) it could be good business.

Jan 18, 2011 7:51 pm

I'd say you are paying 2x TTM. Start at 2x, then discount for unfavorables. Doesn't sound like there are any unfavorables?

I had a guy approach me about a 20m book, but it was too far away, too many households, and he wanted a lump sum.

I agree, there are going to be lots of opportunities going forward, and having a really good indy b/d would help by having them help out with finances. My bd gave us some very favorable interest rates when we joined. Lots of the "deals" going forward, are going to be the 10m-30m type. My team, we could handle something bigger, because we have a fulltime admin, and there's two of us to produce. Trouble is, we're not really in a metro area, so it limits us a wee bit.

Jan 18, 2011 8:13 pm

Thanks, maybe you are in good position to aggregate smaller blocks, even being where you are. I go to FPA meetings and virtually every small indy  planner looks ancient, I guess many are planning to die at their desk.

I  am also thinking 2x, I like the idea of discounting from there. It's trails and not commissions, except the ongoing labor of doing financial planning deliverables.

Since there's a lookback, it could be tied to that provision to protect the downside more and give the seller some more potential upside, which really looks like making a few months more payments from the buyers points of view (paying a little more) - as long as the money is sticky and grows, which would be a win-win.

Jan 18, 2011 8:27 pm

OK...what is the FPA?

Jan 18, 2011 8:50 pm

Financial Planning Associaton, where geeks go to get lunch and continuing education.

Some local chapters are more active than others.

Jan 18, 2011 8:59 pm

I think I read an article about this a while back and the average price was something like 1% implied GDC for lump sum and add a premium for positives or 2% implied GDC for a pay out over time discounted for negatives.

But there is no real way to tell until you look at the book. The guy could have churned the book last year to increase the GDC and fluff the book.

The closer it resembles your book the more it is worth but only to you. So if you are a niche provider you could get a discount because lack of demand or pay a premium because it is perfect for your practice. Lots of variables.

Jan 18, 2011 9:19 pm

I always heard 1x TTM for comission books (12b-1s included, trails, Cshares etc) vs 2x TTM for fee books(non 12b-1s)

Jan 18, 2011 10:47 pm


Jan 18, 2011 11:12 pm

If buying stocks trading at 9x earnings is cheap, then buying a practice at 2x earnings can only be described as a heck of a deal. Now, most folks don't have a ton of money sitting around doing nothing, for some cash deal. So, you find decent financing, or make a deal with the seller. When you think what the markets might do over the next 10 yrs, 2x might later be best described as a "joke". Think about leverged buyouts back in the 80s, and think about how people used borrowed money at well above 10% to finance those deals? Those deals made sense, because the underlying assets were grossly under priced. x7, you're right, there is a heck of an opportunity at hand, over the next few years.

Jan 18, 2011 11:52 pm

Yes - - although - - in the case of a partial practice sale, let's say I'm buying the lower deciles - I'm buying the small accounts that drag heavier on overhead, and putting my labor to the part of the book that the seller is shedding in order to focus on larger accounts and niche marketing.

There may be opportunities in there, probably problems, too. 

I think you hold yourself out as a generalist, probably able to serve engineers or blue collar alike, so you can appreciate the dilemma. The seller seems to have similar investment philosophies ( like, offer insurance but don't try to turn everything into a VUL policy or annuity).

There are things that advisor new to the client can do, that the old advisor might have trouble with (like, I don't really like this surrender charge free annuity, let's just go to wrap).

Or raising the wrap fees on smaller accounts.

More money, more work, more headaches.

And then there is the opportunity cost compared to  just going out and find a few new clients every month, maybe on the golf course at the club, increasing the amount of playing time, like some other advisors...

Jan 19, 2011 12:17 am

Well, the ideal sale, is the one where you are buying the book off someone with similar styles, but has decided to retire. I'd like to think that if a great rep, with a big book, would be especially inclined to sell to me because of my values, how I do biz, my clean record, and references that would validate that. When I sell my biz some day, I'd be very driven to find the right rep, cannot imagine just selling to the highest bidder.

I'd never buy a book where the rep is pruning. That guy knows something... 

Jan 19, 2011 1:29 am


Jan 19, 2011 5:43 pm

x7, was just thinking. If I did a transaction like this, I'd have a lawyer heavily involved, someone that specialized in business transitions. That contract would have language that the other party would sign, to avoid little "surprises".

Our practice has a attorney that specializes in business related items. Our buy sell was structured by him, along with all of our corporate documents. The cost is relatively low, compared to the potential headaches we could have later. When you're indy, legal risks are especially important to manage.  

Jan 19, 2011 5:57 pm

Agreed. There must be some standard contracts out there, like those used by broker firms like FP Transitions, although they say "get a lawyer".

One more reason for me to focus on bringing in a modest number of mass affluent new clients this year, and servicing the heck out of what clients I already have.

This is what the numbers and my risk/reward analysis favors.

Taking on debt and cash flow obligations would also make it harder to move to RIA. Not that I want to take on the legal obligations of breaking away from b/d ( and giving licenses) and setting up an RIA ( and setting up a separate insurance agency) right now.

My guess is, a lot of solo planners think their practices are worth more than someone will actually pay.