If you are thinking of buying a financial advisory firm, whether you are a solo advisor or you simply want to absorb another practice into your own, there are several things you should look for before you make the decision. Below, you will learn about the various pieces of data you should always analyze beforehand.
#1 – Who Are the Clients?
Before you buy a firm, it is important for you to understand the client base. For example, taking on 400 individual small clients requires much more work (and much less profit) than taking on 60 wealthy families. The smaller client load presents a better opportunity for a return on your investment. Age is no longer a major consideration when it comes to clients; 30-somethings these days are often just as wealthy as octogenarians. Remember that the more local and affluent the clients, the better.
#2 – Is Much of the Annual Revenue Fee-Based?
As long as the majority of the clients are affluent, then you can rest comfortably in the knowledge that about 75% of all of the company’s annual revenue comes from the various fees they are charged for financial advisory services. This provides you with a stable income each year. In fact, experts will always advise against buying a firm that generates more than 25% of its revenue on a per-transaction basis. If the number of transactions slows down, so does your revenue. With a fee-based clientele, you continue to make money even if your clients’ transactions start to wane.
#3 – What Kinds of Wealth Management Services Were Clients Given?
If a firm’s investment management philosophy does not match your own, then buying it may be a recipe for disaster. You should first find out whether the firm’s clients have modern, comprehensive plans, and then you need to make sure that these plans are compatible with your processes. Each client should have his or her plan reviewed annually at the very least, and you also need to find out whether there are any third-party money managers involved. After all, buying a firm and then completely changing the services that are offered to clients can cause chaos and cost you money.
#4 – What Is the Support Team Like?
Most firms have assistants, junior advisors, and the like who provide critical support to clients. In fact, many of the firm’s top clients will probably have close relationships with some of this support staff. You need to make sure that these firm members are willing to stay involved throughout the transition and keep providing the same excellent service they always have. After all, the most important part of the transition is making sure the clients feel comfortable and secure with their finances – even if the ownership of the firm changes.
In short, when you buy a financial advisory firm, do your due diligence to know what you are buying. Make certain that you have a firm understanding of the clientele and support staff so that you can make the transition a smooth one.