As a forward-thinking wealth management professional, your book of business is one of your most valuable assets.
It’s the foundation of your practice, representing years of hard work, relationship building, and delivering personalized guidance that has helped your clients achieve their financial goals.
Planning an exit strategy is essential to get the most out of what you’ve built. Whether you’re looking to retire, pursue other ventures, or simply step away from the industry, knowing how to maximize your book of business during this transition is crucial.
At TERRANA GROUP, we’ve got over 32 years of experience helping savvy Advisors find success by going independent and leaving the confines of the traditional wirehouse environment. Let’s explore innovative strategies for making a fulfilling change.
The Importance of Exit Planning
Exit planning is a critical component of any financial advisor’s career trajectory. It’s not just about selling your practice; it’s about securing your legacy, ensuring client continuity, and maximizing the value of your life’s work. It’s a mindset shift from income generation to value creation, in the words of Scott Snider, President of EPI®.
Now is the time to identify and address your personal, financial and business needs so you can confidently move forward and focus on new priorities.
The key to a successful exit strategy is to begin planning well in advance. Ideally, Advisors should start considering their exit options 3-5 years before their intended departure date. This allows ample time to enhance the value of your practice, identify potential successors, and implement necessary changes to make your business more attractive to buyers.
It’s all about knowing exactly what you have to offer. Up-to-the-moment data “could mean the difference between realizing your practice’s full value and selling it for substantially less than what it’s worth,” per LPL Financial.
Calculating your client lifetime value (CLV) is an important element of getting accurate valuation info. Having younger investors in your book adds value, as they offer the potential for long-term involvement, especially with the coming Great Wealth Transfer, when the older generation is anticipated to leave more than $68 trillion to their Gen X, Millennial, and Gen Z heirs.
The paradigm is rapidly shifting, and the old ways of advisory client servicing are falling by the wayside. Adaptability and informed foresight will help you embrace the future of wealth management.
Assessing Your Current Position
For many Advisors, selling their book of business is the most direct and profitable exit strategy. This approach allows you to monetize your client relationships while transitioning them to another advisor.
Consider these factors:
Valuation: Your practice’s value depends on multiple factors, including the size of your assets under management (AUM), client demographics, revenue, and growth potential. Advisors typically see valuations ranging from 1x to 3x their gross revenue, but this can vary.
Finding the Right Buyer: Whether selling to a colleague, an external buyer, or even a larger firm, it’s essential to partner with those who align with your values and have a similar approach to client service. A smooth transition ensures client retention, which helps maintain your book’s value.
Client Transition: Prepare your clients for the transition well in advance. Communicate openly about your plans and introduce them to the new advisor. A smooth handoff can prevent attrition and help retain the book’s value.
Succession Planning
For Advisors who wish to pass their business to a trusted successor, such as a junior advisor, business partner, or family member, formulating a strategy for the future is fundamental to success. This ensures continuity for your clients while providing financial security for you as you transition out of the business.
Choose someone who shares your business philosophy, understands your clients’ needs, and is willing to take your practice to the next level.
A phased transition where you slowly reduce your involvement while the successor takes on more responsibility can help minimize disruption. This also allows for training and mentoring that will smooth the process.
Establish a clear buyout agreement that outlines how and when you’ll receive the compensation you deserve. This could involve a lump sum payment, a revenue-sharing agreement, or a mix of both.
Merging your practice with another firm is a popular option to ensure your clients are well cared for. A merger can also enhance the value of your practice, especially if it brings additional resources, technology, or expertise.
It’s crucial to let your clients know how your plans will benefit them. For example, access to more services, a broader range of investment options, or a more extensive support team.
Forging a New Path
In some cases, Advisors may choose to gradually wind down their practice without selling it. This approach involves transitioning clients to other advisors, scaling back operations, and eventually retiring without a formal sale or succession plan.
However you decide to proceed, the senior consultants at TERRANA GROUP are here to offer the expertise and resources you need to make the most educated decision.
Making a major career move can feel overwhelming, but you can rely on our insights and in-depth industry knowledge to help you find your way. The future is now — reach out to us today!
