Welcome to Financial Advisor IQ

Some Sellers Might Be Unintentionally Sabotaging Their Own Deals

May 11, 2016

During the negotiation process of selling their advisory firms, some common mistakes FAs make might just cost them the deal, the Wall Street Journal writes.

Industry experts found one of the main mistakes advisors make is changing deal terms at the last minute.

Changing deal terms late in the negotiation process tarnishes “credibility and trust,” says David Selig, chief executive officer of the Mill Valley, Calif.-based firm Advice Dynamics Partners.

Selig tells the Journal advisors should write down their most important deal terms and stick to the list. He says when making the list, advisors should be careful to not max out “each deal lever.”

Not understanding how a deal works is another trap advisors falls into when trying to sell their firm.

Take clawbacks, for example. Some advisors fail to realize that buyers can add additional terms allowing them to recover money already distributed, the Journal writes.

Such mishaps can be avoided if inexperienced sellers speak with other advisors who have experience selling their own firms.

Advisors can also stay abreast of deal-making verbiage by attending industry conferences and speaking with transaction advisors and attorneys, the Journal writes.

David DeVoe, managing partner of the M&A consulting business, DeVoe & Co. tells the Journal advisors who are considering a sale should keep their lips sealed about some pertinent details, such as other offers – or a lack thereof.

For instance, an advisor telling an interested buyer there are no other offers on the table – in the hopes of showing commitment to the deal – could backfire. DeVoe says sellers should set up “boundaries” before speaking with potential buyers.

At the same time, there are some important details sellers should discuss, such as the date when each founder plans to retire.

If retirement is slated for too soon after the deal is subject to close, the seller risks losing the deal altogether.

Ideally, sellers should create a “joint vision statement,” the Journal writes.

The statement should include the firm’s goals for clients and staff as well as a plan explaining how to retain clients.

Finally, an advisor who shares negative gossip about partner disputes is bound to be a deal-breaker.

Elizabeth Nesvold, managing partner of the New York-based boutique investment bank Silver Lane Advisors tells the Journal it’s important for sellers to keep a professional demeanor at all times.

By Tamika Cody
  • To read the Wall Street Journal article cited in this story, click here.