There is a very smart and catchy TV commercial for a large hotel chain that makes me think about the approach that our industry is taking to succession.  I am sure you know the ad where an individual is performing some highly skilled service with a client [Dentist, Acupuncture etc.] only to reveal that they are not a Dentist or an Acupuncturist along with the catch phrase”….but I did stay at a Holiday Inn Express last night !”  The inference being there is a nothing as powerful as a good night’s sleep.

With the ageing demographics in our industry and a distinct shortage of new entrants as planners, the probability of increased transaction volumes is high. Someone is going to buy the books and create regionally stronger, larger firms. But businesses are NOT all the same.  The Financial Planning industry and its counterparts are unique in many regards and understanding the nature of its characteristics is not only important – it is essential to the success of a transaction as measured in the eyes of the buyer and seller, and the Clients.

There is an old adage – “Those that can – Do, those that cannot – Teach!”  How many  succession transaction advisors do you know who have an experiential view that they offer in a business advisory role?  It is probable that the majority of advisors you have contact with are Teachers first, Practitioners second.

A major concern for either a Buyer or a Seller is the nature of the assets being sold and the terms of the transaction. The primary assets are intangible – that is to say they cannot be touched in any real way and cannot be used as conventional collateral. The terms of the transaction will be tied to the projected performance of the assets and may be paid out over an extended period of time.  So as a buyer you expect and will demand the performance of the assets equal or exceed your projections for the business you are buying.  As a seller you expect to be paid the money agreed on as the buy price and in the specified period.  This will not happen if actual new cash flow does not cover added costs including the debt service.

Does your advisory team understand Regulation SP? Have they prepared and executed a transition plan for 100’s of new clients coming across the BD channel without losing sight of the implications to cash-flow and expenses. Before entering into the transaction did you plan and allocate resources suitable for the firm’s continued operations while  taking on the new clients and maintaining the same level of service?

Buying and selling a book is a partnership and demands effort on all sides – it is not an ad hoc affair that simply happens because two parties want it to. It is complicated and time consuming.  It can be very rewarding but it is not without risk. Risk mitigation requires planning, preparation and execution management.  The impact of a failed transition can be catastrophic – with all parties feeling that they are victims to the other side’s misrepresentations or inadequate planning and execution. The bottom line is that no-one wins.  You may reassure yourself with the thought that “The contract will protect my interests.” A legal judgment might be the outcome of a conflict – however it will not be a timely decision. The legal process is a long winded, demoralizing process.   While arguments are being heard in court, lawyers are billing time and your business still has to be conducted.  It is far better to assess the potential risks and plan for them ahead of time.

So when it comes to assembling advisors to assist you when looking at buying or selling a business, ask the questions with regards to their experience and knowledge of completing deals in our Industry. If they reply “I have not personally completed a deal in your industry BUT I did stay at a Holiday Inn Express last night…” look a little further – the benefits will be well worth the added time for due diligence in making a selection.