Would You Buy Your Own Book?

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My February calendar has become an endless list of flights, hotels and speaking assignments at conferences. The locations are great (Florida twice, Las Vegas, Dallas, etc.) but I rarely see the outside of the hotel. What has been interesting to me is that this year, more than others, most of the coordinators are asking for topics surrounding succession planning. It seems that the coordinators and even the press are becoming more concerned with the topic. You only have to look at these articles form places like Investments News and Financial Planning Magazine to know what is on the mind of our industry.

The fact that it is a hot topic is probably because of a recent report by Pershing Advisor Solutions says that “70 percent of advisory firms with $5 million or more in revenues either lack a succession plan completely, or at best have an inadequate one.”

Fat and lazy and/or embarrassed?
Some advisors I’ve met have a very nice business. They’ve built up their assets under management to reasonably high numbers; they have some quality client relationships and have systems in place to provide their clients with a solid planning and goal achievement. After working hard and pushing for growth over the years, they have made it to a place where they don’t have to extend as much effort as they did in the past or they have created what Fiduciary Network called a lifestyle business. In other words, “owners are paid less than they would as employees of another wealth management firm and, therefore, are subsidizing their businesses with their labor.”

This is exactly why many advisors are not fully engaged in succession planning. I think they know, yet don’t want to admit, that their business may not be worth what it should be. In fact, they may be embarrassed to know that it would not command the higher multiples that some firms receive.

Turn it around on yourself
One of my favorite expressions is “The Ugly Look”. The Ugly Look is that first thing in the morning look at yourself in the mirror. You stare under the bright lights and you see every wrinkle and flaw. At this point, you see yourself exactly as a potential buyer would see you when placing a value on your firm. In fact, let’s say you were the buyer… would you see your practice as firm that:

• Is run as a business
• Has a strong ratio of fee clients to commission income
• Has systems and back office administration outsourced for consistency and efficiency
• Has a strong growth and a track record of long term profitability
• Has client service and marketing practices defined
• Has the perception that your practice will run well without you

There’s a saying that applies here – Would you buy your own book? If you said no, isn’t it time to start building for the highest multiples? One advisor I met said, “I’ve built my business so that I could walk out the door tomorrow and the business would function properly and the clients would be fine. I have no intention to do so, but it is a nice feeling to know that everything is in place.”

What would happen if you walked out the door tomorrow and didn’t come back?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

Learn More About John Anderson

  • Paul

    John,

    Great post. Advisors often don’t look clinically enough at what they’re building or more importantly, how they’re building it. Then, they’re frustrated when they do take a reality check and it becomes easier just to perpetuate the approach already taken.

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