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How to sell your advice firm the right way

After a busy year for advice firm sales, Talya Misiri talks to business owners who have been though the process and shares their top tips for ensuring a smooth transition

How to sell your advice firm the right way

After an intensive, four-day induction course and the knowledge selling his business to a particular consolidator would entail several journeys to its headquarters for negotiations, Galashiels-based Lowland Financial managing director Graeme Mitchell (pictured) knew this was not the right option for him.

With his wife ‘quietly hinting’ he should retire from his advice business, Mitchell sought out the right acquirer to take the firm on. Following a lengthy process with a consolidator, he explained he was ‘concerned it would make me change so much I would lose clients and end up with a completely different business’.

Instead of going with a larger consolidator that would dramatically alter the business he had built over two decades, Mitchell found the right acquirer for him, Loyal North, the advice consolidator backed by Fusion Asset Management. It accepted his business model and agreed on a transitional period that suited all involved.

When selling an advice business, there are a number of considerations. A smooth transition is essential to retain clients, staff and ensure the seller is happy they have fulfilled their motivations for passing the business on.

In 2018, New Model Adviser® has reported on more than 30 sales of advice businesses, and there are no doubt many more we have not yet discovered. It has been a busy year.

With an increasing number of advice firms looking to sell, it is crucial to know how to do it well. 

Successful exit

‘Every succession plan starts with you,’ Bristol-based Ovation Finance chairman Chris Budd (pictured above) explained. If firms are going to sell they need to decide what the business is worth, not just what is offered.

‘How much do you need to sell your business for?’ he said. ‘Most businesses that fail to sell, fail because of vendor expectation. Because we think our businesses are worth more than they actually are.’

Mitchell agrees and said securing the best deal for everyone involved is what makes a successful sale. ‘No doubt there were better financial offers but I would have to do more [that would change the business offering] and get clients to pay more. It’s good to feel that nothing has changed,’ he commented.

Petronella West (pictured below), chief executive of London-based Investment Quorum, who completed a management buyout in August this year, said compromise is vital for a successful deal.

She said: ‘I am not 100% sure everyone got what they wanted,’ but she noted the firm has created a forum for all staff to raise concerns and is delegating authority where appropriate.

Having worked to build their business to what it is today, most want to exit knowing they are leaving behind a legacy; that their business can outlive them.

West explained that with a ‘young team and a strong legacy, the best option for the business was a management buyout’. Through this method, the business can retain its values and operations, and employees can continue to work to their strengths to drive the firm forward, she said.

Budd came to realise that for his business to live on, he had to make himself redundant. Speaking at a recent Personal Finance Society event, he advised those looking to sell their firm to ‘make yourself the least important person in the business.’ This applies as much to selling to another firm as going down the employee ownership trust (EOT) route, as he did.

Budd recalled telling his employees: ‘I’m not signing the paperwork until you’re already running this business without me.’

He added: ‘Annoyingly, it’s done really well since. The average amount of profit from the old business in the first year went up by 15%, which, as its owner, is bloody rude.’

Right for everyone

Mitchell also needed to know his business would live on without his continued support or oversight. ‘I need to be able to let go when I retire,’ he said. ‘I don’t want to be that person that hangs around and can’t let go of the business or stay on in a non-executive role.’ 

He said Loyal North enabled his business to continue unchanged. Mitchell then went on to inform his clients of this. ‘We made a big point of writing to tell people what was happening, why it was happening and that there will not be a [noticeable] change.’

Stephen Lyth, managing director of north Wales-based Alchemy Advisory Services, criticised those who just want an out, disregarding the security of clients and continuity of service. He said: ‘Some people have obviously decided enough is enough and want to get out. It would appear as long as they are alright, that’s all that matters.’

Lyth said he considered a number of potential deals with consolidators when looking to sell his firm earlier this year. But ‘no deal we looked at, and we looked at three very seriously, held any benefit for our clients if we sold them out’.


On the same page

Emma Ames (pictured above), director of Exeter-based Cathedral Financial Management, which has bought four firms and is still on the acquisition trail, said both parties need a long-term plan in place.

The buyer and seller must establish a clear plan for the progression of the business, she said, and have an understanding as to whether all staff, including the selling owner, will continue on at the new business. ‘You must know whether the owner has plans to retire and, if so, when,’ she said.

Cathedral acquired Sidmouth-based firm Derek Parry in 2005 and Westminster Financial Management in 2010. In the same year, it took a majority stake in Plymouth-based DMA Financial Planning, before completing a buyout in 2016. In 2004, Cathedral also acquired Somerset-based Marlin Advisory Services, run by Martin Lingeman. He initially retired but then returned to Cathedral three years later and is now due to retire again in March 2019.

It is common practice for the advisers selling a business to look to retire and only work with the acquirer until clients have been moved across.

But, Ames revealed there can be advisers who sell intending to leave but who end up staying on. ‘With two firms we dealt with, the owners worked way into their 70s,’ she said.

Therefore, it is essential, she recommended, to be clear on intentions to avoid this and enable a smooth transition.  

She said the protection of business values, employees and clients can have a significant impact on the success of the sale. ‘Doing the appropriate due diligence and making sure all the information on your business and clients is there is crucial.’ She explained that, especially for firms that outsource to discretionary fund managers, it is important to gather all the information the manager holds. She said it was ‘inevitable’ the acquiring firm may require this to move clients onto another platform.

Mitchell emphasised that, while wanting his business to outlive him, a key priority was ensuring nothing had changed.

Explaining why he chose to sell to Loyal North, Mitchell said: ‘What I liked about it is it said “this is your business, if we like that we won’t change anything”. 14 months on, it has been a doddle. Nothing has changed for me, my clients or my staff.’

The crucial bit is ensuring employees are prepared to continue at the business.

‘It takes at least two years to get the business ready for a sale,’ Budd (pictured right) said, ‘If you haven’t got the employees ready for what running a business is all about, it will fail.’

It is crucial to ensure external parties have the right motivations. Advisers who have sold their businesses have said brokers, solicitors and advisers of the sale must share the same goals as the selling advice firm.

Word of warning

When looking to sell up, Lyth engaged with a broker who put forward two potential firms. He warned that with ‘consolidators in vogue’, smaller advice businesses must be wary of certain brokers.

‘Many brokers, who still work on commission, have a direct inducement to make people sell to larger firms,’ Lyth said.

He added he had been in sale discussions with a potential buyer, which was a financial planning and investment management firm. But he said it ‘had no interest in our clients, just the money we had under management and that is why we walked away from it. It just wanted our assets under advice on board and into its funds’.

Lyth said he was not prepared to abandon his clients in this way. Instead he chose to join advice network Beaufort, which enabled him to maintain his business’ values and client base, he said.

Mitchell also stressed the importance of getting ‘a good solicitor’. It’s a massive job and you can’t afford to get that wrong.’ He recommended negotiating a fixed fee with external parties, adding the deals were likely to ‘grow arms and legs’ as the process goes on.

Concluding, Lyth said: ‘If you have to sell, pick up the phone and talk to practices you have some symmetry with. Otherwise, if you have the staff and infrastructure, go for an EOT every time.’

A smooth transition is most important, for clients, staff, the seller and ultimately the buyer too.  

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