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Buying a Financial Advisory Practice: Here is Your 10 Ten Point Checklist

Jeremi Karnell
Feb 23, 2017

If you are ready to make your move from financial industry employee to financial practice entrepreneur, you have two basic choices. You could open your own independent financial planning or wealth management firm and build it from the ground up - attracting new clients, focusing on top quality service and relying on organic growth to make a profit. Or you could buy an existing practice, skipping the time-consuming and uncertain initial step of client attraction and focusing instead on serving the needs of the existing client base.

For many new financial professionals, the second strategy is the winning one. Buying an existing financial advisory practice carries a host of benefits, from lower startup costs to greater profitability out of the gate, but only if you know what to look for and what steps to take.

Buying an existing financial advisory can be a smart thing to do, but it is not a surefire path to success. As with everything else in business, the success of your financial advisory practice will depend on a number of factors, including the amount of homework you have done and the deal you are able to make.

It helps to have a comprehensive checklist to work from when buying an existing financial advisory practice. Here is a great 10 point checklist you can use to get a great deal on a financial advisory practice and make the transition from old owner to new one as seamless and transparent as possible.

Establish the fair market value of the existing financial advisory firm

Determining the true value of an existing financial advisory firm is not as easy as it might seem. There are many ways to establish that value. Before you make an offer, you should consult a professional who can guide you through every step of the process. Plus, services like Truelytics can help you determine the true fair market value of the firm, so you do not end up overpaying for your entrepreneurial dream.

Assess your financial situation and startup capital

If you set up a financial advisory practice from scratch, you will need startup capital to get your new firm up and running, but you would also need capital to buy an existing practice. Before you start shopping or make an offer, you need to assess your own financial situation. How much can you afford to spend? How do you plan to finance the purchase? What do you expect the payback period to be? The answers to these questions can guide you going forward.

Line up the financing you need

Buying an existing financial advisory firm can be an expensive proposition, and you will likely need to line up financing before moving forward. Work with your existing banker to determine how much you can afford to borrow and how long a term you can get to pay back a loan.

Establish a timeline for the purchase, but do not let yourself be rushed

You may be itching to become an entrepreneur and business owner, but there is nothing wrong with keeping your day job while you keep your options open. Being in too much of a hurry will be counterproductive, so give yourself the time to find the firm that best meets your needs and investment outlook.

Consider the corporate culture

Every financial advisory firm, from the smallest to the largest, has its own culture and client outlook. Even if the firm is a good fit in most respects, buying it could be a mistake if there is a mismatch between your vision for the business and its existing organizational culture and investment strategy.

Make a personal connection

There will be a time for the lawyers and financiers to get together, but in the beginning your connection should be a personal one. Get to know the current owner of the financial advisory firm you are considering. Discuss the owner's successes and failures, outlook on the industry, and what they have learned through the years. This information can be invaluable going forward, as well as possibly stop you from making a costly mistake.

Consider the size of the firm

Size matters when it comes to buying an existing financial advisory firm, so think about the existing clients and how easy (or difficult) it will be for you to accomplish a smooth ownership transition. If you are just starting out, buying a smaller financial advisory firm makes sense - the acquisition cost will be lower, the client base will be smaller and the transition process will be easier.

Meet with the existing staff

Getting acquired can be scary for the employees of an existing financial advisory firm, and the sooner you address those concerns the better off you will be. If possible, talk to the existing staff of the firm you are thinking about buying. Discuss your investment strategy and future plans with them, and be open and honest about how you view the firm. Getting everything out on the table as early as possible can help you avoid rumors and get the buy-in of key players in the firm.

Assess the client base

The nature of the client base will make a big difference in everything from the value of the financial advisory firm to how you approach buying it. Is the average client a wealthy white-collar professional or an average blue-collar worker? Have the firm's clients been onboard for a long time, or are most of them relatively new? The answers to these questions and others can help you fine-tune your takeover plans and avoid harmful client disruptions.

Meet with clients personally

The move from one owner to another can be unsettling for the existing client base, and it is important to address any concerns they may have up front (even prior to your purchase of the practice, if possible). Contact each client personally to request a meeting, and use those sessions to get better acquainted with their investment needs, past experiences and goals going forward. The more you get to know the existing client base, the easier it will be to serve their needs going forward.

Buying an existing financial advisory firm can be a great way to strike out on your own, but your success will hinge in large part on your hard work and preparation, from knowing what to look for in a firm to finding out what the firm is really worth.

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