Ask an advisor matchmaker: what makes a credible book buyer?

John Ciliberto of Jacobsen Partners breaks down what sellers look for in an acquiring advisor

Ask an advisor matchmaker: what makes a credible book buyer?

It’s almost the end of another calendar year, and countless veteran advisors are looking at their practices to reflect on that age-old question: is it about time I exited my practice?

After decades spent building relationships and pursuing their life’s work, it’s surely not a decision to be taken lightly, and there are many paths to exit. For those advisor owners considering the road of selling to an external acquirer, not just any buyer will do.

“Advisors don't want their clients, who have trusted them for several years, feeling abandoned and handed off to just whoever shows up,” says Johnathan Ciliberto, managing director – Advisor Hunt at Jacobsen Partners. Advisor Hunt provides access to and facilitates partnerships and deals for advisors, with the mission of maximizing advisor career wealth.

“Sellers look for a credible buyer who will retain the business and satisfy their clients,” Ciliberto says.

To project credibility, he says a prospective buyer should have a well-established business, which includes having an efficient practice, maintaining a track record of attracting and retaining clients, and being well-respected.

Aside from those indicators of strength, he says selling advisors should also evaluate a potential buyer based on the access they have to tools and resources, which include:

  • Cutting-edge technology
  • Non-commoditized products
  • Unique client tools and resources
  • A dedicated support team and transition systems
  • An enhanced service offering for clients
  • Sufficient cash flow, or financing, to support the deal

“If an advisor has all these components right, they will be very competitive to buy books,” he says. “Furthermore, they will likely consolidate outside assets from those books they buy. In 90% of the transactions we facilitate, the buyers end up with more assets than they bargained for within 12 months of a purchase, due to outside asset consolidation.”

Because access is such a dominant factor in the credibility equation, Ciliberto says a buying advisor’s dealer firm weighs heavily in the transactions that they support. Ideally, he says the buyer’s dealer firm should be one that’s “set up to thrive and build wealth in the evolving financial services industry.

“Buyers need to ensure they are well-established, have access, and can tell a compelling story about themselves and their practice,” he says. “An advisor's career wealth is greatly influenced by dealer strength. In fact, the most important career decision next to becoming an advisor, is dealer choice.”

For would-be buyer advisors who may be currently considering – or re-considering – their choice of dealer firm, Ciliberto suggests a few “mirror check” questions, including:

  • Does my dealer minimize my administration and compliance responsibilities?
  • Does my dealer give me access to non-commoditized products?
  • Does my dealer give access to advanced technology and unique resources?
  • Does my dealer have the systems in place to support my acquisition?
  • Would a retiring advisor leave their dealer and be proud to come join me at mine during the transition process?

As for advisors looking to sell, Ciliberto preaches the value of preparation. Whatever their practice’s unique composition, he says a seller will be able to fetch a higher value at more favourable terms if they are well-prepared.

“Sellers need to envision their successor's ideal profile as well as their own retirement,” he says. “They then need to inform their clients early of an upcoming transition. This entails showcasing the advantages of the succeeding advisor, outlining the transition process and addressing any concerns.

“It’s also important for sellers to ensure their book itself is prepared for a transition,” he adds. “This means cleaning up; exiting captive products, triggering capital losses early, moving paper to digital, preparing data for due diligence, among other things. … Clean books attract higher price multiples and better deal terms.”