Buying a practiceor buying another advisers book of business is, or will be, a really hot topic given the dramatic regulatory changes happening and the proportion of existing financial advisers who just don’t want to go through a few more years of change.For many advisers buying another practice or book of clients will be a serious growth strategythat must be considered. It is a primary strategy for attaining scale and a viable (and relatively predictable) revenue stream, but buying another advisers practice is usually a much more complex matter today than it was (say)5 years ago though. It is no longer a matter of trust in the reliability of the contracted renewal or trail income, and it can certainly no longer be a matter of trusting the value of those as reported by either a product supplier’ systems or what the selling adviser says it is. This is not because either party are inherently untrustworthy; but an acknowledgement that both typically have inaccurate records and reporting systems.So any purchase must be considered in a commercial fashion. That involves a lot more than the traditional method where a purchasing adviser is typically looking at just picking up a few assets, or renewal income streams, to add to their existing book of business. In those instances the entire deal is approached as a straightforward purchase of a contractual income stream only, and more often than not the entire deal is done on a rule of thumb (renewals multiple) valuation, supported by a handshake. That can work well enough if you are just buying a relatively small portfolio of business and swinging it into your existing brand and business structure, as the deal is relatively insignificant in in the great scheme of things. Those opportunities are disappearing as more financial advice practices become increasingly sophisticated and complex commercial structures, and will become even more scarce over time.The purchase of an agency income stream only is already becoming less common than it was/ . It is more common for an agency purchase to be a complete business sale which includes all the systems, people, intellectual property, assets…and potential residual liabilities. Lenders – whether it is bankers or industry institutions – are far more discerning than ever before in providing the necessary funding given some of the dramatic regulatory shifts in the last year or two. This reinforces the need for potential purchasers to be even more commercial in their approach to a potential deal nowadays.Related: 6 Things Banks Taught Us About Building A Super Profitable Business
whether professional (external) valuations have been sought financial modelling which is realistic having been done the degree of vendor flexibility and involvement in the transferMost purchases moving forward will involve some serious money, and some serious risk or potential for ongoing liability. For the smart professional growing a great practiceacquisition remains a good strategy – provided it is done thoughtfully and makes strategic sense.