Book three: reaching critical mass
My grandfather had two longstanding associates; one that sold a book two years ago, and another, still active, but at a place where he wants to solidify his succession. At the beginning of this year we signed a legal agreement that allows me to buy his book within a five-year period.
I’m optimistic about retention. He’s already introducing me to clients, and some knew my grandfather, so there’s inherent trust. In terms of the contract, he’ll account for the standard maximum 20% reduction in retention – and if we lose more clients than that, it’s on me.
If all goes according to plan, by January 2024, if not sooner, I’ll have approximately 200 more clients, bringing the total to 500 households under management, which I think is the limit for one Advisor.
A repeatable process
To get to the next level of growth, I’m bringing on an associate to learn the business from the ground up, like I did. In fact, I have a friend just finishing up a finance degree. The plan would be to mentor him for a few years while he gets his licensing, and then help him get his own book.
I have a creative solution in mind for this. The next time the right book becomes available I’d buy it and keep 90% of the revenue for five years, in order to pay it off. My associate would get a 10% stake while servicing 100% of the accounts. After five years, he’d receive another 10% annually until we’re 50/50. At an agreed upon point in time, he’d receive 100% ownership.
Ultimately, if he learns from me, does a good job and is able to retain clients, it’s a win/win. I’ll recoup my investment without doing the work. While I maintain oversight of my own clients, he’d eventually come to meetings, and be available to help when I’m away. And it’s a great opportunity for an associate, because I’d mentor him and finance the transaction. How else could a young Advisor starting out be able to own a book… without having to pay a penny?
Advice to buyers
At this early point in my career, I consider myself lucky to be able to grow this way, because what I see is that the older you get, and the more established your business, the harder it is to walk away. Unfortunately for buyers right now, there are a lot of sellers waiting until the very last minute. Perhaps as we near the end of the market cycle, and more demands – of time and effort – are placed on Advisors of retirement age, change will happen.
If you’re considering buying a book, there are more resources available than ever before. As a start, a great way to get a feel for what you’re about to do is to find a podcast or two on the subject. For example, I listened to BMO’s “The Advisor’s Guide to Buying or Selling A Practice.” Other basics include attending conferences and asking your branch manager to guide you through the process. At PEAK, we happen to have a VP of Business Development able to connect prospective buyers and sellers.
Most important: be open. Start talking to seasoned Advisors and form relationships. You just never know what might come your way a few years from now.