Positioning your book for a sale

As more advisors approach retirement age, business succession plans should begin with one question: “Would you buy your own book of business?”

That’s what John Novachis, executive vice-president for growth and development with Investment Planning Counsel (IPC) in Toronto, said Thursday at the Institute for Advanced Financial Planners’ annual symposium in Edmonton.

Many advisors assume that when they’re ready to sell, someone will be eagerly waiting to buy their book, Novachis said. But that won’t necessarily be the case as more sellers enter the market in an aging industry, allowing buyers to be choosier. Books with a defined business and fewer clients will be more appealing — and fetch higher prices — than more complex books that are challenging to integrate into the buyer’s business.

“The overall optimization is very important,” Novachis said.

While many retiring advisors aim for straightforward sales, there are other options. Advisors who aren’t quite ready to retire completely may consider partial sales that allow them to work less. This may also be appealing to advisors who aren’t sure about the buyer and prefer to sell gradually to see how the transition goes, Novachis said.

“I’ve seen a lot of large practices transition on that tranche approach and they’re very successful,” he said.

However, selling in steps can also create risk for the seller. If the buyer has a change of heart midway through the process, “you’re going to end up re-owning your business,” Novachis said, and there’s a risk that business was damaged in the meantime.

Selling tranches of a book can also be a useful strategy for advisors who aren’t thinking about retirement. Jason Pereira, partner and senior financial consultant with Woodgate Financial Inc. in Toronto, said selling a tranche of your book can be a way to restructure your business, particularly if there’s a segment you’re less interested in serving after a period of growth. Often selling a tranche can lead to growth within a short period, he told the IAFP symposium.

Another risk for advisors approaching retirement is waiting too long and watching their business atrophy as their clients decumulate and they fail to win new ones.

Intergenerational planning is one way to save an aging practice, Pereira said, as securing a client’s children as your clients ensures the wealth remains in your book, making it more valuable: “The buyer should be willing to pay more for a less risky transaction.”

Novachis said valuing a book is more art than science. Advisors buying a book should look at the average client age, average account size, number of clients with RRIFs, the number of positions per client to get a sense of the investment strategy, as well as EBITDA and free cash flow.

But the art is determining if the business is run well. That means looking at the client relationship model, the office and whether there’s a defined client experience. “The more you make your business look like a business I want to buy, [the more] I’m willing to pay for it,” Novachis said.

Part of that, Pereira said, is making sure your business can operate without you, which means every practice should have a business continuity plan. Advisors preach such planning with their clients, he said: “Let’s not be hypocrites.”

Disclosure: Advisor.ca was a media sponsor of the IAFP symposium. Part of the sponsorship included transportation costs. No coverage was guaranteed in exchange for the sponsorship.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.