How to develop a financial services practice through strategic acquisitions

Advisors who want to grow and develop their practices typically triangulate their strategies on tried and true marketing, prospecting and referral techniques to bring in new clients.

While these tactics can be effective and the hard work pays off for most advisors over time, I’ve never felt they resonate with my personal skill sets. Rather, I’ve favored strategies with a more immediate impact on my practice’s bottom line to build momentum and maintain growth.

My business truly expanded after I purchased existing, successful practices from fellow advisors who planned to retire at two very different stages of my career. This strategy is a mutually beneficial move for advisors who want to grow in the profession as well as advisors who are developing their succession plan and want to keep their clients in good hands.

 

Finance and structure deals with flexibility in mind

Advisors don’t need to wait until a certain point in their careers or financial life to purchase a business.

Financing options exist for junior and mid-level advisors who do not have enough liquid capital to cover the cost outright. Agreements can also be structured so that the sale price is fair and flexible. For example, if the buyer or seller is concerned that clients might leave after the transition, the contract can require re-evaluations of the practice after a certain period of time so the purchaser does not pay for those clients. Considerations and flexible pricing can also be incorporated based on the client’s age and tenure with the practice.

The first practice I purchased was financed 100% by the seller, which increased his overall risk in the sale but provided financial flexibility and necessary cash flow for me as a younger professional. He was deeply invested in my training and the transition, which ultimately improved my long-term success.

I was more established in my career when I made my second purchase, which was a combination financing arrangement. I paid a portion of the cost in advance while we worked together to build my relationships with the new clients. The risk is more balanced between myself and the seller, although I’m paying for client relationships I haven’t built yet, the seller gets some of the money in advance of the full sale.

 

Identify potential practices for maximum success

There are a myriad of factors to consider when you research potential acquisitions. Ultimately, you want to feel a strong sense of alignment with the founder or current owner of the practice before any ink is put to paper. Look for signs that will indicate how well-suited you are to succeed with their clients and how prepared and invested the owners are to ensure a smooth and seamless transition process.

As a first step, identify a seller whose overall client service strategy includes products and practices familiar to you. If they largely focus on an area or strategy you’re not comfortable with, your new clients may come with questions and reservations that will harm the relationship in the long run. Next, get to know the potential seller. Determine how well his or her business practices, ethics and values line up with yours as a litmus test for moving forward.

For a successful sale and transfer, a seller should be willing to invest time and energy into a well-structured deal that benefits both parties and all clients. Among other finer factors impacting the sale, like cost, timing, reevaluations, etc., use softer filters like ethics, values and commitment to mutual success during the decision-making process.

 

Leverage mentorship as a tool for professional development and success

The guidance from the former owners of my acquired practices was a secondary, high-value asset I acquired that benefits my long-term success years after the businesses transitioned.

Both businesses I purchased were owned by fellow MDRT members who were deeply invested in their practices and clients. They valued mentorship as part of a well-structured succession plan to protect their legacies and clients, as well as to invest in my future success. Because their succession plans were well-structured, we mutually benefited from several years of overlap of business management and guidance to ensure a smooth transition and prosperous future for the clients and professional development.

If possible, leverage mentorship from the seller as part of the transition process. Ideally, the sale and transition should be thought through and incorporated in a succession plan that takes proper steps to inform clients, employees and other stakeholders of all details and next steps. The years-long process lends itself well to mentorship and is a prime opportunity to learn all you can from the seller and his or her team and ensure nothing falls through the cracks.

Strategic mergers are a strong option to grow and develop a financial services practice in addition to traditional marketing and referral growth vehicles. Beyond the obvious acquisition of a successful agent’s client book and increased revenue, mergers can also bring needed professional mentorship to the table as well as financial flexibility during periods of peak growth for your practice.

If you’re interested in practice growth through an acquisition, take your time to select the right practice for you. Consider what type of practice will suit your needs and what kind of a sales structure would be best.

 

---

 

Michelle L. Bender, CPF, is the president and owner of Potomac Financial Consultants, LLC, in Germantown, Md. Potomac is an individual asset management and retirement planning firm that manages about $220 million is assets for about 300 clients. She’s also a seven-year MDRT member with three Top of the Table qualifications.