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Maximize the Sale Value of Your FA Practice

January 9, 2017

Independent financial advisors can take several simple measures to increase the value of their business prior to selling it at the end of their careers, David Grau Sr. writes in Financial Advisor magazine.

To begin, advisors need to determine whether their business is a multi-generational firm with more than one owner, a practice with just one owner and several advisors using its infrastructure, or simply a book of business, in which the advisor only owns the client relationships, according to Grau, president and founder of consulting firm FP Transitions. Such determinations will help advisors work out their position in the industry, he writes.

And it’s imperative advisors have a continuity plan. Without one, their family could lose out on a large portion of the value of the business if the advisor suddenly dies, as the terms of the deal would be up to the broker-dealer that takes over their book of business, according to Grau.

Advisors less than five years from retiring should hire a third-party professional to get an impartial valuation of their business, he writes. Doing so lets the advisor focus on driving growth as well as see their business as a buyer, according to Grau. It’s also important to consider the tax implications of a sale, as the ownership structure can determine whether the deal is taxed as ordinary income or at the much higher capital gains rate, he writes.

Another simple way to boost the business' value is to merge with a larger firm in exchange for equity, he writes. This allows advisors to gradually transition their clients, collect a paycheck for a few more years and then sell their stake in the broader firm when they’re ready to retire, says Grau.

Finally, it’s obviously best to sell at the practice’s peak value, he writes. To get the timing right, Grau suggests looking at annual gross revenues over a five-year period and the number of net new clients over the previous 12 months. If those numbers start falling, he writes, it’s time to sell.

By Alex Padalka
  • To read the Financial Advisor Magazine article cited in this story, click here.