CA-EN Advisors

Missed opportunities in buying and selling a book

October 2020
Jerry Butler

Jerry Butler

Founder and President, Queenston Consulting


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As the industry adjusts to the new normal, many Advisors are wondering if the time is right to exit or snap up a new book of business. Seasoned IA-turned-consultant, Jerry Butler, Founder and President of Queenston Consulting, provides an overview of the succession planning environment, and offers tips on how both sides can make the best deal possible.

A blindspot for aging Advisors

If I had a cent for every time a Financial Advisor said succession planning was not yet a priority, I would have a tidy sum in the bank. In fact, a 2018 study1 conducted in the U.S. showed that 60 percent of Advisors near retirement lacked a formal plan for transitioning their book. Meanwhile, in Canada, the Investment Executive’s Report Card series2 released the same year showed that less than half had a documented business continuity strategy in place.

In today’s context, there are two important dynamics which stand to benefit both buyers and sellers. First, industry confidence is surprisingly strong, with expectations for annualized growth of 14%3 by 2023. At the same time, many Advisors are nearing retirement, perhaps accelerated by the pandemic, which means the incentives from all parties are closely aligned in the same direction.

Planning an exit strategy

In the world of technology start-ups, selling a business as quickly as possible seems both natural and easy. Compare this to the experience of handing over a wealth advisory practice, which thrives on relationships spanning decades, and the complexities can feel overwhelming.

What is the upfront cost? How long till you start getting paid? Are there price adjustments built in to the transaction? There are dozens of moving parts that make a book look desirable. Moreover, the type of sale may vary, with some Advisors choosing to offer shares, sell by tranche or structure an earnout arrangement.

Bear in mind that each option has differing tax implications for both sides, and consequently the valuations can range significantly based on numerous variables. Nevertheless, many Advisors seek a third-party valuation for their business, especially when they already have a buyer in mind.

Where timelines for selling a book are concerned, the best advice is contained in the old saying: first you start a business, next you plan an exit strategy. Too many Advisors I’ve known make up their mind to sell at breakfast and expect an ideal match by dinner. The prudent approach takes longer, not only to cement the business’s future, but to protect the interests and goodwill of your long-established clients. To quote John C. Maxwell, “A leader’s lasting value is measured by succession.”

Tactics that matter for buyers or sellers

On either side of the table, there are some simple actions that should guide the transition process.

  1. For both buyers and sellers, the first step is to build a profile of your ideal partner, including the various key attributes which would satisfy your checklist. This outline is useful not only to set one’s own expectations, but to ensure there’s close alignment on the endgame. For example, someone looking to sell an $80 million book is unlikely to view an Advisor with only $8 million assets under management (AUM) as a viable successor, and that’s important to know upfront.
  2. Next, for the seller, it’s extremely useful to have a rough valuation on hand. You can also benefit from gaining street intelligence on how other Advisors have conducted their transactions, and even some familiarity with the deal flow in your particular region. Ultimately, having a realistic starting number is usually what gets both Advisors past the first conversation, though this may not be as hot button an issue with banks given their structures around acquisitions.
  3. Perhaps the most important step for buyers is to have some financing in place. The days of buying a business for a dollar down and a dollar a week are gone. Sellers tend to have a better handle on what is out there in the marketplace, though it can be challenging for independent Advisors to receive adequate support. Ideally, someone shopping for a book should speak to a lender and have a few options laid out. In the same vein, it helps to know what’s available with respect to terms, guidance and best practices.
  4. Another useful, yet overlooked, step is to create a sales pitch which includes a continuity plan. Ask yourself: What happens to your spouse if you meet with an unfortunate accident tomorrow? Similarly, you want to proactively discuss your succession plan with clients, as the likelihood of someone asking, “What’s your plan?” increases each year.
  5. Finally, lay down a process to onboard clients. Banks often have this formally set up, and so the transition is easier and presents a huge selling feature for outgoing Advisors. In other instances, when the book is moving from one established organization to another, some clients may resist moving their accounts. However, you can generally improve the retention rates by developing and implementing a joint onboarding plan.

Young and rearing to go? Build experience equity

Advisors with fewer years under their belt undoubtedly have unique challenges when it comes to buying a book of business. Coming from the bank channel may offer some leeway, given that there’s a large institution ready to guarantee payment, but in general this advantage is largely underutilized in the market, and is an acquisition strategy that has lot of potential to grow.

For non-bank Advisors, the best stepping stone is experience. If you can secure a position as an associate within a more established practice, the years and successes will in time afford you an opportunity to buy a good-sized business.

One important thing to remember when buying a business is: don’t plan on making money from it for at least three years. During this period, you will be paying for the book; and you may even have to pay the seller’s rent if he has a lease and so on.

In other words, if you are buying a business to immediately increase your personal income, reconsider either your timeline or your expectations. Case in point: An Advisor with $100 million under management could buy a $50 million book, and still the chances are they will break even on that deal in three to four years. That would still put them ahead of the game, but it would take no small degree of patience and dedication. I always remind my clients that if it were easy, everybody would be doing it.

To summarize, buying or selling a book must be treated with the same care as you would ask of your clients when they sit down for financial planning. It is a highly involved process, far beyond the scope of a single seminar or workshop, and buyers in particular should be proactive in searching for opportunities. Most successful Advisors have someone in the team working on marketing; why not use them to find the aging set who may be looking to handover their book?

In many ways, buying a book is similar to prospecting, or taking advantage of a referral network, except your goal is to find the right fit, at the right time. If anything, your aim must be to build your profile, maximize the valuation, set the terms, and be ready to go in when the opportunity arises.

To access our Advisor guides to buying and selling a book of business, acquire more effective practice management tools, and obtain other savvy tips to help build your business, contact your BMO Global Asset Management Regional Sales Representative.


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms.
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