Four Tips For A Successful Sale Of Your RIA Or Financial Advisory Practice

Now is a good time to sell your financial advisory or wealth management practice. This month, at its 10th Deals and Dealmakers Summit, California investment-banking firm, Echelon Partners, reported “higher than ever” levels of M&A activity, accommodating deal structures, and sustained valuation multiples. Many are attributing the boom to new interest from private-equity investors, and an Echelon managing partner stated that greater private equity involvement is inevitable. With the low overhead costs and recurring revenues of wealth management’s service-based business model, as well the wide range of potential targets, private equity is producing deal structures that RIAs can’t ignore. 

Within the next 10 years, industry experts predict that the market will be saturated with retiring RIA owners competing to sell their practices. This has compelled many owners to begin planning their departure now, to take advantage of the favorable market and sell their firm at top dollar.

Selling your practice doesn’t necessitate retirement.

Before jumping into any discussion with a potential buyer, sellers should first consider what they’d like their role to be, following the sale. Oftentimes, sellers aren’t ready to completely cut ties with their business. Sticking around for a while after the sale typically makes the transition easier and can help the business retain more clients. But sellers will need to reach an agreement with the buyer and negotiate an acceptable role and timeframe. 

Obtain an accurate valuation, and make improvements to boost your sale price.

You may have an idea of what your practice is worth, but we wouldn’t be surprised if you didn’t. When sellers don’t have an accurate assessment of the value of their company, it’s easier for buyers to expose the weak areas of the business and levy expenses onto the seller. Before even putting a firm on the market, sellers should complete an in-depth assessment of their firm’s strengths and, primarily, its weaknesses. This allows the seller to resolve any issues prior to the sale and thereby increase the practice’s profitability and improve its perceived value. 

Hire a transition team.

Sellers benefit greatly from the guidance of a dedicated transition team. By engaging with third-party consultants, sellers will be more likely to maximize their business’s sale price and achieve their desired terms. It’s essential to find a team that has two particular strengths: (1) the ability to identify and understand the intricacies of valuing an advisory practice; and (2) the skills and commitment necessary to fiercely negotiate on the seller’s behalf to reach their desired price, terms, and goals. 

Taxes are a key component.

With any deal, the price and terms of the sale are always considered the most important — but taxes should be, too. For example, sellers can and will miss out on a considerable portion of their return if the tax treatment is not properly considered. When buyers negotiate agreements that involve the buyer being paid as a consultant by the seller, for example, the deal can be written off as a business expense for the buyer. But that means that, instead of claiming a capital gain and being taxed at that rate, the seller will instead be taxed at the higher income tax rate. That’s why it’s so important for sellers to articulate cost and terms up front, pay particular attention to the significant effect that taxes will have on their profit, and consult a tax professional about their individual circumstances before signing a contract. 

AdvisorLaw provides comprehensive M&A consulting services.

AdvisorLaw’s Practice Purchase Network (PPN) spans the country. Through the PPN, our team of specialists helps sellers find their ideal match. Along with successor and partner sourcing, AdvisorLaw also offers contract preparation, complimentary business valuations, succession planning, and more. We will manage your transaction from start to finish. 

If you’d like to learn more, give us a call today at (303) 952-4025, or simply complete the form below for a complimentary consultation.