My name is Brian Heckert, and I’ve been involved in MDRT for over 30 years. The first thing I want to make sure that everybody understands is that I am not a practice valuation expert, I’m not in FP transitions, but I have gone through 12 purchases and two sales of a practice. So my intention today is to share with you some of the experiences that I’ve used personally and, hopefully, open up a discussion about how to value your practice if you’re looking to sell or what to look for if you’re looking to buy.

And the first question I’ve asked everybody is, Are you looking to sell your practice at some point in the next five to 10 year? If so, raise your hand. I’ll argue that if you’re not looking to sell, you’re not looking to grow. And one of the biggest mistakes that I’ve seen over the years from some very successful people is that they have not built their practice for sale. And we’ll go through a couple of techniques on ways to structure your practice so that you can actually sell a firm instead of selling a client list, because those who have a firm for sale and not just a client list can extract multiples that are significantly higher than somebody who’s just selling a sales practice.

So today we’re going to spend the next 90 minutes or so talking about ideas that have worked for the people whom I’ve been able to merge into our practice. And some of the things that I’ve seen that help that evaluation process, that transition process and may actually help you extract more out of your business or get more from your current relationships.

So over the last six years, I was very fortunate to have been involved in the leadership of the executive committee of the Million Dollar Round Table, and through that period of time, our firm grew by almost 95 percent. Over that six-year period, I only dedicated about 40 percent of my time to client management and actually being in the office. And that was possible because of the acquisitions that we’ve made over the last 10 to 15 years.

My first acquisition happened in the year 2001. To give you a little bit of background, I started in the life insurance business with a heavy focus on retirement planning, and I was in a partnership with my general agent and my sister-in-law, who was his daughter. We did a lot of third-party administration work; we administered qualified retirement plans, so we’ve always had a focus on the qualified plan market.

In 2001 I was giving a speech at NAFA and was talking about the business of retirement plans and those type of things. I had a person come up to me on stage afterward who said that he had a friend who was selling his TPA practice and would I be interested in talking to him? And that was the first merger. It happened on August 1, 2001. We spent about six months on the negotiations, the clawbacks and all the other provisions of transitioning that practice. That happened one month prior to Sept. 11. It was because of that acquisition and the cash flow generated that my business remained pretty stable. It was also a very important lesson for me to put in a clawback provision if business falls off the books.

Now we have about a 95 percent retention ratio on our clients staying with us after a transition, but when they go out of business, you have no option but to have that fall off the books, and that’s what we experienced in that firm. We lost about 10 or 12 plans that were pretty significant revenue because they went out of business during that tough time.

So I had a trial by fire in my very first acquisition, and in that period of time in 2001, we actually went into the negotiations as a three-way partnership, and at the last month before we signed the papers, it turned out that my two partners backed out for various reasons, and it became a solo acquisition. That was the first of many, but another lesson that I learned was that I was able to add scale to what we already did. Our firm administered about 45 plans, and through that acquisition I was able to get five staff members and grow our firm from 50 or 60 plans to over 220 plans, and I got the expertise. So not only did I get volume of revenue; I acquired significant assets and people knowledge.

I also acquired relationships with other advisors, which generated joint work. So as you think about acquisitions, I think the most important thing to keep in mind is what comes with that acquisition. What are you getting other than a client list or assets under management? And that’s where you can find the value of a partnership and an acquisition that go well beyond the revenue stream.

So we’ll talk a little bit more about how to actually go through a practice and how to evaluate what the benefits are beyond a revenue stream are.

As I said before, you’re either acquiring or you’re selling. Here are some of the demographics that a lot of you are familiar with: In the United States, there are about 315,000 advisors who perform some kind of financial work. There are about a third of those people who are within five years of retirement. The average age is 53 years old, of all advisory, and in the Million Dollar Round Table, the average age is 58 years old. Five percent of the advisors are under age 35. So if you do the math, there’s a heavy, heavy bout of selling that’s going to be happening, and if you’re going to be selling in the next three to four years, you might be in a great position, just like the housing market, if you can catch it when there’s more demand than there is supply, and that works out great. But those who are selling after five years may be looking at more sellers than the ability to buy.

There’s a lot of activity in this acquisition marketplace, and I think that for those of you wanting to expand, the discussions should start now with people who may be interested in retiring. And for those of you who are looking to transition your clients, starting is the best thing you can do. So if you’re not buying, you’re selling.

A discussion I’ve had with all my clients has been that by the time they reach age 55, they should have a transition plan in place; by the time they turn 60, instead of selling their value and capitalizing on their value, they will give up value to the marketplace. Because at a certain point in time, if you’re not willing to invest what it takes to do the seminars and keep your business growing, your business will hit a cliff, and it will very quickly diminish. Because our clients look at us, they look at our age, and I’m already getting the questions that say, “When are you going to retire?” The minute that becomes the opening conversation, that should be something you should consider looking at.

When your clients start asking you when you’re going to retire, the answer should be, “I’m working on an acquisition plan.” We’ve already started ours; my plan is to have it completed in five years. It doesn’t mean I’m going to exit the advisory business; I’m going to the ownership business. And, again, I think that’s the biggest thing that I’ve found with a lot of the people whom I’ve worked with over the years — those who have done the successful transitions have a plan.

But what are you actually selling? What’s your value? The best practices are ones that sell a firm. The least highly priced practices are the ones that sell a client list. I look at the hammer on the screen, and I use that as an example. [visual] This hammer is a $4 hammer down at Walmart, and with it you could build a mansion. So the person who has the skills could use the hammer to build a beautiful mansion and make $100,000 with that simple $4 hammer. So is the value of the hammer $100,000, or is it $4? In our practices, what is our value proposition? Is it the products that we have, or is it our ability to use those products? Is it the name of the company you represent, or is it the relationship that you have with your clients?

This hammer, worth $4, changes in value if you’re driving down the road and you careen off into the lake and your car starts filling up with water. All of a sudden, the value of that hammer changes as the water creeps up and starts to close in on the entire car. Now the value is priceless. So the value of the hammer is determined by what the use is. Think about your practice in that manner. Is the value of your practice the ability to place a life insurance, or is it the ability to save the pains of a misplaced estate plan?

I use this example. In Southern Illinois we had a very big factory. It was a metal stamping factory, which supplied the automotive industry. It had a couple hundred employees, and in the middle of this factory, it had a huge stamping machine. Well, the Germans came in one day, and they bought out the factory; they wanted to automate it, so they put in robots, and they let go of all of the employees. And it was going along fine. They let everybody go; the management was running effectively, until one day that big old stamping machine, the thing that they couldn’t get rid of, the 100-year-old machine, stopped working.

So they sent engineers in; the engineers tried to fix it but couldn’t get it done. So, finally, the general manager, after a few days, figured out they were losing millions of dollars by having it broken down. He said, “Bring in the old maintenance man. Let the maintenance man come in and see if he can fix it.” So the maintenance man came in; he had a small satchel. They told him, “Whatever you charge, we’ll pay it, but please get the machine running. You know how to fix this machine.”

So the man took out a small hammer like this and smacked it three times on the big cogs, and, all of a sudden, it started running. And the very thankful manager said, “Give me a bill.” So he reached into his satchel, grabbed a piece of paper and said, “$10,000.” The manager, being quite tight with money, said, “That’s ridiculous. I need an itemization. That’ll never fly. You were here three minutes, and you hit it on there; I can’t pay it. Give me an itemization. Tell me what you did to improve it.”

So he crossed it off, and he said, “OK, itemization: $10 for the hammer; $9,990 for knowing where to hit.” We’ve all heard stories like that. But as you look at your practice, it’s an example of how you can either buy or sell the value of that practice by making known what your practice is worth.

So Lesson No. 1, which you should consider writing down: If you are in the process of either buying or selling, make sure your financials are true financials. In my experience, I’ve seen people run their practices as a lifestyle practice. What comes in gets mixed with payroll; it gets mixed with cars; it gets mixed with retirement contributions, a little bit of entertainment; and until somebody is actually audited, it’s a mess. So if you want maximum value out of your practice, itemize your expenses, clean up your books and do it now so that you have a three-year running total on what your true revenues are and what your true net rate of return is on your practice.

Next, are you replaceable? Are you the only thing that your clients come for in your firm? Do they call you? A good example of knowing whether you’re replaceable or not is to check your phone for how many client phone calls you got over these last couple of days. If your clients are calling you directly for beneficiary changes, for market updates, for anything else, I’ll argue you are not replaceable. And a nonreplaceable executive in a firm or in a life insurance practice or in an advisory practice is not a good multiple increaser. It’s not a good way to sell your firm if everybody has the relationship only with you.

So how many of you had or still have an answering machine in your office? OK, most of the people over age 50. For those of you under age 30, an answering machine used to plug into a landline. A landline was something they had back in the day. My point is, we’ve all heard it. We have now, in our pockets, not answering machines but answer machines. Is your firm one that can be replaced by technology? If you’re a sales-based organization selling ordinary products, maybe unique to your company, if you’re replaceable by the technology, then again your multiple is going to decrease on your sale.

We all heard about the impact of robo advice. And this is intentionally small because I just use it as an example of 2018. These were the top 10 to 15 robos. [visual] Robos are replacing simple advice. There’s going to be robo advice for life insurance. There will be robo searches for annuities. I tell my clients when they say they can get a quote off of their phone and they get a term quote off of their phone, “You really want to save your family’s personal security from the same place that you get your pornography?” It shocks them a little bit, and I say, “I don’t mean pornography in the normal sense but financial pornography.”

When they’re going to their phone and checking your quotes out, are they able to see the impact and find out what the true value of that advice is on the phone? Is it fake news? Is it real? So what I tell people in the sales practice, again: “Have you built a moat around your practice to make it irreplaceable? Do you have procedures that differentiate you from just financial advice? Are you designing your own portfolios? Do you have ways that you can differentiate yourself from the guy or woman next door?”

So these are examples of some of the things that are out of the rankings of 2017, and the No. 1 firm at the time was Betterment. It has $10 billion under management, and it’s growing by leaps and bounds. But here’s the thing that I like to point out. If you go down, its average account balances aren’t that great. They’re $38,000. SigFig, in the middle there, has a $227 average account value. [visual] It’s not charging much, but it’s not getting much either. Its average annual fee on $227 account balance is 57 cents. It can’t afford to answer the 800 phone to give the people answers to the questions that they have about their account.

So as you build your practice, you might want to differentiate and acknowledge that this is coming, but adapt your practice to make a difference so that you can separate yourself and your value proposition from just asset management. And then, when the markets go like they’ve gone the last couple of weeks, like they did earlier this year, the robos went dark, and it just increases your value. So again, how do you bulletproof a practice from market declines? Build services and things that will answer their questions, build a planning-type practice versus just an investment type practice, build total financial planning services versus just life insurance, and that will help you build value in your practice.

So here’s what we’re going to go through today: Determining your value. What is the value of your firm? I have a few examples of what has worked. Many of you have used financial FP Transitions. There’s Succession Link; there are a lot of different places and firms that will value your firm. FP Transitions has a great article that talks about how just using a multiple may not be the true value of what your firm is worth, and it helps you extrapolate an extra $50 to $10,000 out of the value of your practice if you’re looking to sell.

Building a firm for sale. [visual] We’re going to talk a little bit about what you do and how I’ve seen practices build themselves and extract the most value, and things that you can avoid. Finding buyers and sellers — that’s one of the biggest questions that I get when I talk about how many transitions we’ve done. The simplest thing to remember is that if you’re wanting somebody to find you as a buyer, it probably won’t happen, the same way you probably won’t get a client to walk in off the street and invest $2 million. Buying a firm and finding a seller is just like prospecting for a client. You have to work at it, you have to have a plan, you have to have a business plan and your buying proposition needs to be as strategic and well planned out as the seller’s financials should be.

How to make an offer and the actual agreement — and then I’ll go through a couple of the successes and some of the problems that we’ve had, some of the ones that didn’t go as well as planned. So what are the formulas? When I put up this slide, one of the first questions everybody went to is, “OK, what is a multiple for a firm?” [visual] I’ll go through a graphic here in a little bit, but there are many different ways to value it. Most of the firms that we’ve acquired or built in have been under $200,000 of revenue. The biggest one was like $250,000 of revenue. The smallest one was about $70. I’ve found that you don’t have to buy the big firms. I also found that you don’t have to buy the entire firm.

We’ve been very successful in offloading things that advisors don’t like to do anymore. If you’ve been in practice for 30 or 40 years, you’ve built a practice that has a lot of things that you love to do, and then there’s this part that you may not like as much. We’ve had two situations where we found younger advisors who had that exact situation. And we took their investment advisory practice off their hands so that they could focus on the things they love to do. 401(k)s were their market. Some people just like working with larger deferred comp.

Are you buying the net, or are you buying the gross revenue? As practices mature, what we find is that the lifestyle that they build inside of their offices causes a lot of overhead. Great revenue, they’re making Top of the Table maybe, but their lifestyle — they have their staff balance their checkbook, they have them do their laundry. They have a lot of things built into that overhead, and that’s great. But that’s not my purchase option. So you want to know what the difference is between the net and the gross. Most importantly, is there chemistry, is there synergy?

The best deals in the world will fall apart if you can’t get along with the people you’re going to acquire. It doesn’t mean that you have to have an identical personality, and I’d argue that those usually don’t work out as well because there is a comparison: “I’m a better salesperson; you’re not so much.” But where we found the best value for both parties, and we have the best client retention, is when there’s synergy. Again, they’re good at one part of their career, but they’ve left the investment management off the table. They’re good at building clienteles and prospecting and selling, and we’re not; we’re good at planning. And we find that our synergies help increase the value and net worth of their client relationship for the three years during the transition.

Is there growth potential? It’s important. Take a look at the average age of their clientele. Are they all 80 years old like the advisor you’re buying? Well, do the math. There’s about a four-year window there. And if there is no relationship with the children of those clients, there is no value in the retention of those assets. Something that we’ve found works very well where we buy a practice and they have life insurance, they have annuities, they have investment assets, is that we have a really good formula for going and doing what we call the “beneficiary project.”

In the beneficiary project, we use the two younger advisors to make calls to the family members, with approval of the client. We call the family members who are listed as beneficiaries of their policies and their estates. And what we do is reach out to them and verify name and date of birth so that it coincides with the beneficiary arrangement, because people know we don’t have their current addresses, we don’t have their names right on the beneficiaries and we offer to change to the beneficiaries.

“And, by the way, as part of our relationship with your parents,” our story goes, “we will now extend their pricing that we have with their assets to your planning process so that we make sure that your planning and your asset administration coincide with your parents.” What we’ve been able to do with that is we have about a 40 percent retention ratio and are able to get through and then actually turn those second-generation people into clients.

A tip for your own practice: If you haven’t done that with your older clients and you haven’t made strides with that second generation, it’s a great way to solidly hold them to your firm if something happens to the parents. It is a way to introduce yourself with the approval of the parents and extend a benefit that they have if they have a fee structure that rewards a lot of assets.

Are you buying assets under management or are you buying a sales practice? Our formulas will go into the difference between those. Ninety percent of the sales practices that are being sold revolve around a recurring revenue stream. It’s one of the biggest mistakes that firms that have sold to us have admitted, that they wished they had gone to an assets under management recurring revenue model 20 years sooner.

So here’s an idea for anybody in this room, because in 2001, when I bought that practice and we were building our own practice, 2004 and 2005 were two of the hardest financial years I had in my life, so hard that we were really on the cusp of bankruptcy a couple times. I knew I needed to transition my own practice more to a recurring revenue practice.

So I was very fortunate to have met with an annuity wholesaler whose product didn’t differentiate in cost between taking an upfront commission versus taking an annual trail. The only difference was the surrender charge. And in that situation he told me, “Build your practice for recurring revenue.” I said, “That’s great. I can’t afford it. I am scrambling to get every penny I can in the door.” And he said, “You don’t have to do it all at once.” And it was like a lightbulb went on.

He said, “Brian, take it over a four-year period. Take your practice,” and on the annuity sales, we were selling a fairly decent amount. “Instead of taking all of it to a 1 percent trail, take 25 percent of the first year. It doesn’t impact your clients, doesn’t hurt them. So, take 25 percent of your sales, build it into 1 percent, take 75 percent and put it all upfront.” And it was like a 1 percent versus 4 percent. He said, “Second year, take 50 percent of your new sales, go trail, 50 percent upfront, and the next year cut 25 percent off, and by the fourth year you’ll have all of your new sales going into trail, and you can afford to do it that way.”

It was that one idea that I got at a very important time in my career, and many of you have probably done that over the years, but it was something that helped me get into building a recurring revenue type of practice. So if you’re 20 or if you’re 50 or if you’re 80, I would encourage you, whether you’re buying or selling, to start building your own practice into a recurring revenue model as much as your company and your products will allow you to do, without impacting the client relationship and the client expense ratio.

Product sales. Again, MDRT is known for the best of the best in product sales, but the product sales are, as Philip Polaveve described, very nontransferable. So building a firm, you take a look at the four different models that are out there, and a product sales firm usually is a career contract. Career contracts prevent transfer of business without the general agent approving. So if you’re in a product sales model, one of the only ways to really capitalize is to find somebody else in that channel.

A solo practice is one that still revolves around the individual advisor, and maybe a staff person. Advance solo, there are three or four people, you maybe have a planner, and then you have a staff person. An ensemble is where the value multiple of a practice starts becoming significant. That’s where you have a lead advisor, you have a secondary advisor and then you transition all of your clients between those two people. The name of the firm is usually not tied to the owner. That impacts the transition of clients. So if you have a Heckert Financial versus a Financial Solutions Midwest, it could actually hinder some of that transfer of those clients and the valuation on those clients. An ensemble firm transitions their client relationship between everybody so that, again, you’re in a position where it doesn’t matter if you are the person giving the advisor of a staff, advisor is giving the advice.

And then a firm ensemble works closely together, much like a law firm does. So the definition of a firm with multiple professionals who practice together is a team that shares resources, budgets, brand and, ultimately, equity value. A vertical ensemble is much like a medical practice. So you have a firm where a senior professional leverages their time and associates much like doctors do. Doctor does the surgery; staff cleans up the wounds. Again, harder to sell in that one.

A horizontal ensemble is multiple advisors working, and they shift business between them — the 401(k) specialist, the planning specialist, the investment specialist, the risk specialist. The most valuable firms are the ones that go vertical and horizontal in the same way, so they create silo environments to handle regional. So if you have clients located in different regions, then they still transfer the responsibility.

One of the benefits our firm has stumbled across is the benefit of technology. Two of the advisors live outside of our area. One lives in Lexington, Kentucky. One lives in San Jose, California. And we have transitioned doing about 70 percent of our client meetings on all of these different acquisitions through Zoom meetings. So my son is 24 years old, he made the Million Dollar Round Table last year and he’s been transitioning $200,000, $300,000, $400,000 IRA rollovers and never meeting the people face-to-face. They’re people who are staffing in Wisconsin or are staff in Springfield or staff in Nashville, maybe bring in for a life insurance review. He gets into the discussion about the planning and the total value proposition and never sits with them face-to-face.

So, as you’re looking, and the reason I bring that up is we’ve created this type of model in our firm so that we not only can handle the distance, but we can handle the specialties with different clients. [visual] If you’re not using video technology to meet with clients, I would encourage you to talk to me afterward, and we’ll show you some ways that we’ve been able to incorporate it to really help improve our efficiencies and take care of clients who are many miles away. Which brings me to another important thing that you can do with an acquisition.

In my household there are four children. My wife and I have four grandchildren, and they live up in the Chicago area. So one of our acquisitions was done mainly for a lifestyle choice. We bought a firm of another MDRT member in Wisconsin, and we purchased a home up there so that we could be closer to our grandchildren. We use that office to go out there and see clients, but we also use it to help our lifestyle in helping raise and get a closer relationship with our grandchildren. And it gives us an excuse and a reason to go up there on a regular basis.

Think about that in your situation. Many people think they have to be next door to the acquisition, when actually you could buy a practice in a lifestyle location, be it Phoenix or Florida, or maybe you want to go north into Colorado. Buy a firm that helps you with your lifestyle as well, and then you can transition. Instead of just having all those clients next to you, use technology to help you get what you want to do.

So, as I’ve stated before, I’m not FP Transitions, but these are the multiples that we’ve used in discussions to open up the discussion about practice acquisition. The toughest ones that we have come across are ones that have career contract relationships. They’re with a career contract broker-dealer. They’re with the career general agency system. And that’s great — it’s not easy for an independent firm to acquire those. There are competitive pressures; there are contract pressures; there are loyalty pressures. And then, after the fact, there is literally ... it’s almost impossible to service that book of business.

A lot of those practices revolve around the life insurance product and not so much the recurring revenue, although they may have $40,000 to $50,000 of recurring revenue. So the multiple of total first-year commission that they are generating is discounted significantly. The first-year recurring revenue is usually a multiple of 25 to 50 percent of that annual revenue. Your retention rate goes down to about that much. You’re buying one year of revenue, and you may lose 60 to 70 percent because the general agency system is very sticky about that. It doesn’t want it to leave.

This brings me to another point on servicing a life insurance book. For firms that aren’t the original salespeople, the selling representative keeps the trail. So you can’t transfer a trail unless it’s a variable trail. So beware that the total income that the advisor sees is trails and first-year commissions, but when you sell a practice, you retain all of those contractual trails. So there is no revenue.

And as a new advisor, you’re buying a client list. So you will be changing beneficiaries; you will be servicing the annual statements; you’ll be answering questions about what the premium should be. And you can’t get information in most situations, and you cannot call up the companies without the client being on the phone. So, buying a practice that is a majority life insurance revenue is very, very difficult and that’s why the multiples are so small.

A solo firm as a traditional sales organization. These are firms that have a niche. So maybe you have a contract with the dental association or the life and disability person, and then you pick up some of those relationships. Then the firm value increases a little bit because there’s a niche that you can buy into and take advantage of. Advanced solo, as you start getting up to one and maybe a one and a quarter multiple. So it’s again more of an advanced type of situation; maybe it’s a niche market. The solo enterprises are the ones where you’re buying an independent firm, and those are the easiest to transition.

The best place to look for those are inside of your current broker-dealer relationship because what you can do is extract the easiest client transition out of that. But the best firms and the highest multiples where we’re seeing two to three times recurring revenue are the firm-based planning; they may have a unique investment portfolio. So you’re not just getting a client list, but you’re also getting maybe some unique material that you can use in your own firm. You may be picking up staff that can help you with your own client base and maybe segregate and build your own vertical and horizontal silos.

So how do you build a firm for sale? The first thing is to increase the recurring revenue. It’s going to increase your multiples significantly. It’ll help you build a practice and extract the most value.

Reduce overhead. It’s amazing how many practices I’ve seen that are Top of the Table level production, maybe Court of the Table, doing a lot of significant revenue, but their expenses are at 110 percent. Their lifestyle runs through it, their car runs through it, everything runs through that overhead. If you’re within five years, if you can’t increase sales, look at reducing expenses. Evaluate your leads. Go through all the things that you got sloppy about when the money was coming in, and start pairing down your balance sheet and your expense ratios to bring up your net.

Secure your staff. We just bought a firm that I’ll talk a little bit about, in which the deal was that when the advisor leaves, the staff leaves. And we knew that going in, and that was a choice we decided to make. But we wanted at least that commitment they were going to stick around that long. So if you’re building your practice for sale, make sure you have some kind of contractual relationship, not binding, but at least some kind of understanding of when that exit’s going to happen. And then, same thing with sales personnel. Are they going to stick around, are they going to jump ship, are they going to try to compete against you? Lock in everything you can so that you have a firm to sell.

And secure your client relationships. One of the things that made the transition in the TPA business and the transition to buying 401(k) packages was actually a discussion with the owners of these companies and a contract for a three-year extension. We agreed to do an upfront bid, but in the situations where we had a significant amount of revenue, we negotiated directly with the client and placed it as a value proposition to the exiting advisor. And all of them had a great relationship with the existing advisor. I said, “We can make this more beneficial to them. It doesn’t cost you anything more if you will give us a three-year working relationship. Feel free to leave us anytime, but just tell us that you have no intention to do anything for the first three years.” And it was a very simple conversation. We had about 70 to 75 percent of the people do that because they wanted to help the exiting advisor leave on his or her terms. So secure those.

And then last, start early. Too many times the advisor doesn’t start to think about that transition until there’s a health issue, until there’s a monetary issue. Start five years with the end in mind. Again, we started ours when I was 48. I’ve talked to a couple of other people in this room about our transition plan. By the time I’m 60, I want to be a majority out of the equity ownership, and I want to be totally out by the time I’m 65. So I’ve got a 10-year window here to train the people and get the systems in place that I want to. Mine is going to be an internal transition. I’m not saying we will never sell, but it’s not our intention to look outside of the people who work in the firm.

So where do you find buyers and sellers? Look around this room. How many of you want to sell a practice? Raise your hand. Whoever wants to buy one, look for somebody with their hand up. Use that approach at NAFA meetings; use that approach at the SFSP meetings. Use that at the estate planning council meetings. Work through Succession Link. I personally haven’t had a great result on Succession Link, but I know people who have. Talk to your wholesalers. Your wholesalers talk to advisors day in and day out. Talk inside of your broker-dealer. Believe me, everybody wants to buy, but not everybody is willing to purchase.

So have a serious plan on how you intend to do it. What is your geographic area? Set the stage so that they can be looking for people like you who want to acquire. If you’re a seller, do it in reverse. Talk to your wholesalers. Who’s somebody who has a complementary type of practice? Prospect just like you would for your best clients. Talk to your centers of influence, your CPAs, your attorneys who are having this discussion with people who are exiting. Let them know your plans; become a poster child for acquisition. Speak at NAFA meetings, speak at the SFSP. Build that into your presentation, and it’s amazing how many people will find you. But you have to let people know that you’re interested in that transaction.

So, the offer. Now you’ve found that perfect prospect, what do you do next? Get together. The first thing is to find out if there’s anything to purchase. If you’re a buyer, you want to see P&Ls, you want to see the net revenue, you want to see the client list. Now there are reservations every time that come up early in the conversation. I like to see personally their commission statement. They can white-out the names, but I want to know, leave the initial in, and I want to know how much of their revenue is diversified. I like to see at least 60 to 70 people in their top 50 percent. That gives me diversification in my purchase. Do the due diligence, and look at broker check. Are there any problems in that advisor’s history? Do a Google search and find out if there are hidden problems inside of it. Check their books and records — do they have a procedure manual?

So do your due diligence the same as you would investing money in any mutual fund or ETF. Do the research. What’s the net revenue? Again, do they have high recurring revenue and high expenses? So there’s nothing net there. Do they have a five-year contract on their lease? Do they have other external things that you can’t get out of when you purchase? Make sure you know what you’re buying. Are you buying the firm, the corporation, or are you buying the individual? Meet with their best clients.

Once you get through the initial stage, the next stage that we’ve found works well is, we pick 10 of their top clients and we do dinner meetings, and we discuss how to transition out of this and use them as an advisory board. What do you feel is the relationship here? We go through a product and service offering where we show them all the different things that we do. We let them know and tip our hat a little bit on what we’re trying to accomplish, and help them out. And then we have the meetings and the discussions.

And then again, know where your revenue is generating. Are you in a situation where they’re in a sales-based organization and a product that you feel in your gut isn’t going to be around in a few years? Is it 401(k) driven, and you have no 401(k) experience? Is it all based upon alts? A high-revenue alt stream where they’re selling alternative investments — is that something that you philosophically don’t know? Know where the generation of that income is coming from.

And the agreement, this is our agreement, this is our opening salvo when we talk to advisors and what we discuss with them. There’s no math or science. I’m not FP Transitions, but we’ve found this works very well, and I’ll show the math on how it works here in a little bit.

So we start off at 2 1/2 times recurring revenue, which, we’ve found, paid back to that advisor over a 36-month period, works very well. Now, for those of you who are pretty sharp in math, that’s 30 months of revenue paid back to them over 36 months. If you’re sharp enough to realize it, that’s a reduction in income. But if you use capital gains to transition an elimination of FICA taxes, you’ll see here in a little bit where that actually can increase the revenue stream from that advisor.

The three-year transition period has been key for us. One year, in my mind, is too quick. It doesn’t allow for the transition of the total relationship. Five years is way too long. We fought a world war in the United States and around the world in five years. Things happen. Three years is just about the right. And what we’ve seen in our transitions is that the advisory mood changes throughout each one of those years. The first year there’s complete excitement; they’re back in business again, and they have a future to look forward to. The second year they’re taking off a little bit more. And the third year it seems like all of them are just simply ready to get out. They’ve seen the transition.

We treated internally, when we do these mergers, we talk to them as mergers. The second year we talk about transition, and the third year we talk about the entire takeover where we change the name of the firm to our firm. And that happens over a three-year period; it happens slowly. We start off with a group meeting. So we put on a nice dog and pony show. We bring in an outside speaker maybe, we fully explain the things that we do compared to what they have, but over that three-year period, you’re going to be in a situation where you’re going to review a lot of what that advisor has done over the last 40 years of their career.

Be careful how you transition those clients and have a story for that transition, in case you run into a situation where the products didn’t meet up to the expectations, because it’ll happen. It’s one of the biggest things that we’ve found, which is that the people whom we bought have been great advisors, they’ve run great practices, but the products and services we use are different from what they use. And the toughest time in those transitions has come when our recommendations don’t meet up with the products that they put in place five, 10, 15 years ago, and how do you handle that?

Make sure you and the selling advisor, if you’re the buyer, have a story on how you’re going to handle that, because the worst thing in the world you could do is tell somebody that that advisor failed them, because they didn’t. You weren’t sitting there 40 years ago when they had that discussion or 10 years ago when they had that discussion and put the products in place. But I can tell you it’s one of the biggest heartaches that we find in our transitions, and that is how do you handle those uncomfortable positions you’re put in? Talk about it; have it upfront.

Life servicing clients. I talked on that a little bit. It gets expensive. We are getting clobbered with service requests in which there’s no revenue generation in the firm. We’re dealing with contracts that we have no idea of what is happening. So in your book of business, when you’re looking at it, make sure that you have a way to deal with that, or have a discussion with the companies, or maybe talk to another person who’s in the life insurance business. If that’s not your forte, sell it to somebody else. Strip that out; work in conjunction with them. But know that a life insurance servicing practice is a very costly proposition in most situations.

Is the staff included? Do you have a staff agreement? Are there things that you can do to maintain and keep the staff? Does the advisor have an early out if they want to leave early? Have a discussion about that. What happens to the agreement if they leave and don’t help you service or generate new business after the first three years?

And then what we found works extremely well is building in revenue split on new business generated. So when we come into a practice and we buy that recurring revenue stream, we own the clientele. That’s part of the transition. But they have other relationships that they’ve tried to work with over the last five, 10, 15 years. And what we try to do is encourage them to go capitalize on it, and use their free time now to go develop those relationships. And we do a 60/40 split: 60 percent to the firm, 40 percent to them, but they have no more overhead. We do all the papering, we do all the acquisition, we order the APS. We take over all of that for that selling advisor. So have a transition plan, and then that’s another way that the exiting advisor can increase their multiple, and they’ll have the time to do it, and we love it because it puts us into a favorable light with the other clients.

So what’s the math behind that? This is an example. It’s not mathematic physics; it’s an example. So let’s take an advisor who had a $200,000 recurring revenue stream, and maybe he was generating $100,000 of first-year commission. So, a total income of $300,000 of gross; FICA taxes on the first $100,000, so roughly $15,000 that they’re paying both sides of; income taxes at 25 percent; $75,000 for staff, and overhead of about $60,000 and $50,000; net income off of that book of about $100,000. Not a bad lifestyle-type practice.

After the sale, their sales revenue is a 60/40 split, so they’re still selling $100,000 of new business, but they’re only taking $40,000 of that. The firm gets $60,000. The sales price, if you capitalize the purchase price 2 1/2 times multiple on $200,000, paid back over 36 months, is 167,000 per year for three years.

The income taxes drop to capital gains rate. In our purchase agreements we always prefer that the seller get the tax breaks. We take it on the chin from an acquisition standpoint, but they’ll be able to capitalize and use capital gains rate on goodwill. They’ll be able to get a noncompete, which has different tax ramifications, but you can buy books and records; you can do a lot of things so that they can get cap gains rate. And we want them to do that. We take very little tax advantage out of it.

FICA taxes only go ... or go down significantly so that they’re not paying back maximum FICA rates; they’re only paying it on their sales-based revenue. So their FICA taxes go down, and they’re out of staff and overhead, so their net income goes up to $156,000, even though they’re taking less off of that book of business than they did before. From the buyer’s standpoint, from our standpoint, we’re going to have sales revenue $60,000 off of that advisor’s 60/40 split.

Our recurring revenue — we now get all of that recurring revenue at $200,000 straight in. Our payments are $166,000; we have staff and overhead that we’ve taken over. Usually we can cut some fat out of the overhead. But we actually use about $16,000, and then we pay income tax on that $200,000 of additional revenue. Out of the 12 situations that we’ve done, there have only been two that haven’t come out after the second year. They have eventually come out of it, but after the third year you get out of the $166,000 payment, and now you have maybe another 300 or 400 clients, whatever that practice generated, and then you’ve got the recurring revenue if you’ve done your job.

I had to explain this to my younger partner at one time about the math behind it, and if you look at this in a vacuum, it doesn’t look like it’s a great deal for the first three years. It looks like a loss situation. But as I put it into perspective, it would take us more than $15,000 a year to build up a $200,000 revenue stream in any situation that I’ve ever come across. We can’t market enough or spend enough on marketing to overcome the acquisition.

So again, very rough example, but it gives you kind of the math behind a 2 1/2 times multiple. And it helps reinforce that if you’re a seller, you want to turn your revenue stream into capital gains income. Get out of the FICA taxes; get out of the ordinary income tax that you would have in a situation like that.

Here are some of the other benefits that we’ve seen time and time and time again. Upselling additional benefits. [visual] So even in the situations where we didn’t have the revenue stream paying our income, the additional planning services that we’ve been able to provide, the additional excitement, have always generated more client base. We get additional staff, so as we grow, we can efficiently reapportion where the work is being done, even if they’re in a completely different state.

You get refreshed on services offered. The clients get a chance to get an expanded menu. Anybody in this room could come into my practice and do your deal in our practice and make both of us a lot more money. And that has happened time and time again when we’ve gone through our acquisition process. And best of all, we get to see advisors who are once again excited about the process. Once they get through the transition of the book and the paperwork that’s required, there’s about a year to a year and a half that they’re truly excited about what they do, and the second year and a half they get excited about planning for retirement. And it’s really one of the best benefits that we get to see on the backside of this.

So let’s go through some of the actual success stories. Advisor No. 1. I’m going to go through where we found the people, how we developed the relationship, all the way through to the close of the process. This was an older gentleman, a 52-year MDRT member, in his 80s, still very active in the practice, who had a current relationship blowup. He was in the process of a merger, something happened with the other advisor that they couldn’t continue and I got a frantic phone call June 2, right before I went to MDRT. We had a common client, so we had seen each other’s work over basically a 15-year period. So even though we had never met face-to-face, we knew of each other. I liked what he did; he liked what I did.

I got the phone call, and literally by the time we got off the phone, we agreed to merge. It happened that we’re with the same broker-dealer — that was just a bonus. But as he said afterward, it wouldn’t have mattered; we would have done the deal anyway.

So completely random, but it was 15 to 20 years of treating the other advisor with respect that put us into a favorable relationship. That buyout ended two weeks ago when that old advisor died. We were 2 1/2 years into the merger, and he was healthy up until the day he wasn’t and died of a heart attack. The neat thing about it was the relationship that he had with all of his clients. As I called the top 10 to 15 clients, they told me they had all heard from him in the last week. He was still setting appointments, still excited about everything that he did. That one resulted in a lot of benefits, things that I’m bringing up to give an example of where the hidden treasures were.

So when we bought this practice, there were additional splits above what he was sharing in that were going to this other advisor who couldn’t service it anymore. We stepped right into that; it wasn’t part of the negotiation. So we automatically got a step up in our revenue stream. He acknowledged that and was fully aware that he wasn’t getting it; we didn’t build it into our multiple. He had a lot of business underway. So when we talked about the due diligence and he brought in his client list, he also showed where he was in progress on some things. We gave him an extra bonus on those clients who closed. We found 401(k) relationships out of that. So that was something that he participated in, and both of us increased revenue significantly.

So an older advisor, somebody who’s been around, an industry icon, somebody you want to keep your eye open for.

Client No. or merger No. 2 was a change situation. So we have three of them that ended up where they specialize in the 401(k) marketplace, and they had built legacy clients. Like everybody, we started in the life insurance and we moved into advisory, and they started really accumulating some very large 401(k) clients. When we started the negotiations with these advisors, it was through some of the downturn. They were getting 50 to 60 percent of their servicing issues from about 10 percent of their revenue. So we came in, and we bought their book of business on their advisory clients so that they could focus 100 percent of their time on what they do best.

Look around your communities. Write down some opportunities that you might have there, no matter where you’re at. Maybe it’s a way for you to clean up your business so you could get into a relationship if you want to sell or get out of a part of your business that is not effective for you but may be effective for somebody else. It doesn’t have to be older advisor/younger advisor; these advisors are all younger than I am. But they wanted to clean up how they are doing their practice.

Offloading merger. We entered into one where it was very similar to that, but we bought an RIA practice. I’ll argue that one didn’t go as well, and we didn’t do the due diligence on the expansion of it. We bought it; it was kind of a pain in the rear from an administrative standpoint, kind of really sticky from a regulatory standpoint. Not only did that person end up buying it back, which was a merge and sale, but we were able to change the whole dynamics of it, and we just literally took the agreement once we figured out that we weren’t going to be into it long-term The advisor’s attitude changed, and we just literally flipped the agreement, changed the names of the buyers and sellers and then re-engineered it back.

And I bring that up for a very important reason. This is like a marriage, and when you get into a relationship with another advisor for a sale, you’d better make sure that you’re being very upfront and very honest through the whole process in case it breaks down. And, fortunately, we were on great terms; it worked out swimmingly. The agreement would have kept it from going bad, but the relationship kept it going good. So make sure that you’re in a situation where you can actually keep the relationship going.

And the merge and sale — we actually sold the TPA practice. Again, when I was going into the negotiations, I had a jumbled checkbook. I had two different corporations, but we split staff; we split everything else. We prepared that practice for sale about six months before. We definitely stripped everything out; we did it on a calendar year. So we prepared one of our lines of business for sale before we had to so that, when the sale happened, it was a very easy transition.

So again, if you’re buying or you’re selling, it’s a great way to think about this talk and this discussion as not only looking for people who are wanting to buy your entire practice but maybe wanting to buy a portion of it.

Develop a timeline. Think about and write this down: What is your timeline? Are you a buyer or a seller? That’s the first question. How quickly do you want to do this? Set a goal for how many you want to do. One’s not enough; 10 is too many. There’s something in between there that’ll fit your model. Are you going to add three and five years? Where are they going to come from? What is your own personal goal? Do you want to retire at 55 or 60 or 70 or 80? And what is the process that you have to go through?

If you’re a secondary advisor in a firm, have an open discussion with the senior advisor to see if this is even an opportunity. What I’m finding is, when I asked my junior advisors what they wanted to do, they answered a lot differently than I thought. So I had an open discussion with them over the last year about what their plans are. Do they have the financial ability to do it? Quite honestly, if you’re a seller and you’re selling internally or to a family member, you’re financing your exit.

So there are two ways to it: You can just milk it, as they say. You can stay as an advisor, keep your license up, and you can get the same value after three years versus selling it. But is that fair to your clientele? Is that fair to the young advisors who are out there busting their tail servicing all the things that you don’t want to do while you’re at meetings like this? So set a timeline and have an open discussion with the people in your office, and find out if there’s a desire to change. Not everybody who’s an advisor necessarily wants to pay overhead and do all the other things. It’s kind of cushy working in our firm because it’s paid for; everything’s paid for internally.

So is there that ambition, is there a fire in the belly to make that happen? And are there enough resources to change, both from the seller’s standpoint and the buyer’s standpoint? There are a couple of banks that specialize in it. Broker-dealers have transition money that you can tap into. If you’re with a big marketing organization, they want to see this happen more than probably the older advisor knows. Tap into those extra resources. When we entered into negotiation with a firm, I called up my broker-dealer and talked to them about transition money. Believe it or not, there’s about 40 to 50 percent of recurring revenue bonus in a broker-dealer situation that they’ll invest in the situation. You have to keep them there for three to five years. There are some time constraints but look internally for those options. There’s money on the table, and we’re in a very good period of time where these broker-dealers, these marketing organizations, want to retain that book of business.

So how do you do it? We’re going to finish up, and then we’re going to go into discussions among each one of the tables. Identify opportunities. Again, the biggest thing that changed when I started really rationalizing the value of mergers and acquisition was approaching this just the same way I would if I was adding another client. Know who your competition is, find out what they’re doing, get their reputational temperature, talk to other referral sources, attorneys. They know who are the older advisors who run a good practice, and they know whom to avoid. Do your research. Explore the market options. Do you want to expand locally, or do you want to do a lifestyle expansion, somewhere close to a place that you want to spend your time?

With technology, now I’m going to encourage you to think bigger than you may have thought outside of your local area. And I’ll tell you, it’s probably a little bit easier to buy somebody 500 miles away than it is to buy somebody five miles away, simply because there may be an overlap in what you’ve done and the other advisor has done, and there’s not as much opportunity because their prospects are your prospects.

Do an extensive financial report. If you’re a seller, clean up your finances. Make sure that all of your business operations look like a business operation. Start with the end goal in mind. Are you expanding to make your life easier, or is your main goal to help somebody else exit the practice? When you go into the negotiations, if you’re looking to help them and honestly put together a proposition not to milk every last dime out of the negotiation, but truly go into that helping that person get to where they want to go, the negotiations go much easier. And it’s the biggest differentiator that we’ve heard after the fact, and that is that our offer didn’t change. We didn’t try and lowball and come back in. We found a fair formula that we can make money after a period of time.

Be consistent, but start with the goal in mind. And think bigger than one plus one equals two. Every one of our transactions that have been phenomenal worked because it wasn’t just adding another 60 or 100 clients; it worked because we added value to the client relationship, and we got multiple returns. And it’s what has been the engine of our growth over the last five years.

So, with that, I’ve been doing all the talking. I would encourage you to now take this opportunity in the remaining 20 minutes or so to talk to some of the people around you. At your table there are probably people who are close to retiring, maybe some people who are looking at retiring, and use this opportunity to get a feel for what your table or your area is doing. What is your timeline? Are you interested in doing it? Who are some experts you can turn to? And how can you either prepare your practice for sale or expand your practice by doing it?

So, we’ve got a microphone here. I’ll throw it to anybody.

Audience: You started out by mentioning the clawback provision. In your agreement I didn’t see where that came out. Is it hidden in there somewhere?

Heckert: Yeah, so in our agreement, I mean that was just a bulletpoint. Our standard agreement is that our triggering is a 10 percent drop-off in revenue. So the clawback isn’t triggered until we have a 10 percent loss in that recurring revenue. Once we hit the 10 percent drop-back, if it only goes down by 5 percent, no clawback. Next year it’s 5 percent; no clawback. Ten percent per year — once we do that, the first year we recalculate, and if it hits the clawback, there’s a 66 percent adjustment on the lost revenue. The second year, it’s a 33 percent adjustment. The third year, if the client leaves, we own that relationship loss.

OK, is everybody clear with that? So our clawbacks have to have a 10 percent threshold. And then if it happens, after that first year we recalculate, and if we lost $50,000 of revenue, then that clawback will take $33,000 off of the next two years’ payments.

Audience: I don’t think this works.

Heckert: Yeah, it works.

Audience: OK. This is a little bit of a sidetrack, but in your Zoom presentation that you mentioned — do you mind my asking a quick question? Are you using individual licenses for each of your team members, or are you doing the rooms?

Heckert: We have three licenses.

Audience: Three licenses. Are you sharing them between everybody?

Heckert: Yes.

Audience: Just the individual like the $100 a year deal?

Heckert: No, I forget what it is, but it’s more than that.

Audience: Is it OK?

Heckert: We can do up to 100 people, because we also use it in our 401(k) meetings as well. So not only do we just do individual meetings. I’ll expand on that a little bit. When we run these meetings, our statement to our clients is, we negotiate with these buyouts, and we tell the clients, “This is our operating model. If it’s not comfortable, we understand, but it’s the only way that we can service people in 34 states and still give you the service.”

We say that it doesn’t matter where we are or where you are; it matters where you want to go. I might be in Nashville, Brandon might be in San Jose, Michael might be on the call from Lexington, and you might be in Hawaii and your children in Florida. We can bring you all together in one room, and the only thing we miss is the ability to shake hands. And then we just go through a regular meeting as if we were sitting side by side. And then, at the end of the meeting, we tell them that we can either store the documents on their site or we can email them so that they have it, or we’ll provide them to the family members.

But we use multiple meetings like that. So we can run three different meetings at the same time.

Audience: I guess the follow-up to it is, are you using that even outside of geographic requirements yet? Meaning if you’re living in San Jose and you’ve got a client in San Jose and he’s one block away, are you still trying to ...? Because I’ve moved to that, and I’ve noticed it takes like 80 percent of the time, and you save it on every meeting almost; it’s quicker.

So is it just an encouragement, or did you send an email out to people and say, “Hey, how would you like your meeting?” Or did you say, “Hey, this is what we’re doing now”?

Heckert: No, we give everybody the choice, whether they want to come into the office. Again, it’s not a choice for anybody out of the area, but in our local area where it became most obvious it was. I had a client, husband and wife from Bankers, 20 miles away, and they were going to come up to the office for a review, but it was raining. The guy called me up and said, “Hey, she doesn’t want to get her hair wet. Can we just do that computer thing?” And that’s when the lightbulb went on that it doesn’t matter; we don’t have to do it for long-distance relationships.

So we offer it for even our elderly clients. It’s not easy for them to get to where they can come in, and we don’t have the ability to invest that time, even if it is a 25-minute drive.

So yeah, we’re doing it local and national.

Audience: I heard about it two years ago, somebody mentioned this, and we started using it in the last couple of years, but your 80 percent number — that makes me really excited.

Heckert: Yeah. And again, Brandon’s 24 years old, and he’s selling life insurance, and he’s doing IRA transitions. Again, it’s an eye-opener because, for these people, their No. 1 loving relationship a lot of times is done through FaceTime on their phones. They get the technology.

Audience: They are more successful online than they are in real life now.

Heckert: Exactly. Well, I don’t know about that, but not as much fun, I’ll tell you.

Audience: So in your offer, you mentioned meeting with the top clients, like 10 clients.

Heckert: Yes.

Audience: So I’m assuming you’re still in the dating phase, you’re trying to figure out if this is something you want to do before the actual agreement’s made. How do you facilitate that conversation with the current advisor’s firm, to meet with those clients? How is that all kind of brought full circle to where you can actually have that meeting and it not spook anybody?

Heckert: So it’s not a secret to your best clients that this is happening. They look at the clock and they look at the age. They are preparing, and if you’re 70 years old and you don’t think your clients are preparing for your demise, they are. And so it’s a relief to ... In all of the situations we’ve been in, it’s not the first time the advisor had talked about a transition, but it’s also not the first time that the client’s thought about it. So, even if we weren’t successful, which there have been a couple of cases where we haven’t been, it’s actually a relief to that client, and it shows that that advisor actually cares about the relationship.

So we have a pretty good script on how we address that.

Audience: So my question is, it’s very tough to buy a book outside of our broker-dealer from somebody else. Have you had any experiences with those general agencies buying outside books, or have you seen that happen and it be successful?

Heckert: Yeah. Half of ours have come outside the broker-dealer, and it’s never an easy transition, but we try and have a discussion, especially the couple that have come from a more captive-type setting. We have a real good discussion, and we try to commit our brokerage business through them and do some things. Again, we’ve got to have access to that book of business.

So we can buy the security side no matter where it is, but for the life insurance servicing, we want to make sure we have an open relationship with somebody. So it’s not easy, it’s getting harder, but it’s still doable.

Audience: Could you talk a little bit about where you see valuations going? There were just a small number of hands of people who were interested in selling; there were a large number of hands for people who wanted to buy. Has that been an issue for you as you look at these practices?

Heckert: So as I’m looking at valuations that I was doing research for this, specifically, property and casualty multiples are going through the roof right now. Two areas that I’m going to address with that answer. The advisory business is sticking in the two to three, mostly around 2:2 to 2:5. We’re a little bit high; that’s the reason we get attention. But you go to anybody who’s had an offer made to them just on a multiple basis, and it’s going to come in to 2:1, 2:2.

Property and casualty firms are getting somewhere around eight to 10 multiples, because there’s a capture mentality right now that people are trying to capture big books of clients, and they want into that pocketbook. The same thing with the 401(k) marketplace right now. There are firms, hedge funds, that have built kind of a fortress of services from TPAs to record keeper robos, broker-dealers, asset management managers, and what they’re doing is using that 401(k) to get penetration to that advisor. What is driving that in my opinion is the do-not-call list.

So it’s tougher and tougher to get through to the people you want to get through to, but with a 401(k) relationship, or a property and casualty relationship, you have a mandate to reach out to those people at least annually. And what they’re doing is, they’re using these relationships to backdoor into that type of situation. So you might have $10,000 in the 401(k), but you might have $1 million in an IRA rollover. They want access to that opportunity. And if you’re in anywhere in the asset management world, look at those spaces, even though you may not be an expert in 401(k), and team up with somebody who can, then check the agreements that you have with those 401(k) relationships to make sure it’s not violating any privacy issues. But that’s the reason property and casualty and that’s the reason 401(k) are demanding more multiples right now. Higher multiples.

Audience: On that area, you have commented that some people can retire at 60, 70, 80 and so forth, and it seemed to be that also, in the general, the multiples seem to be highly in favor of buying and very much against selling, generally, for our particular lower multiples. I’m curious if you have any comment on that, because it looks like one of the morals of that story could be you should work forever and not sell. Because if you sell, your lifestyle could drastically decrease if you don’t have many millions of other assets. And I’m just curious if there are any other comments on that. Not that, I mean, you could, like you say, get your office going and have other people working for you, and you could work to 90; maybe it works, but I’m just sort of curious if you have any other comments on that area.

Heckert: No, I think it’s a very accurate statement, and all of us have seen other advisors who need every single sale that they can make. They’ve been great at planning for their clients and maybe not so successful planning for themselves. We’ve been very fortunate that we’ve had a lot of good relationships; they’re well healed, and it was a transition issue. They wanted to help get their clients to somebody they could trust because they were like family, and other than just have something happen, they hit a guardrail or have a heart attack where they have no control over that.

It’s more about the control of the destiny than it was of capturing every last penny of revenue. So again, if they don’t have the savings backed up, it’s not a great deal. At 2 1/2 times multiple, they’re better off working for four or five more year. They’ll get more out of their practice that way, and then let it drift off, even if they lose half of their clients. But it’s more about the client relationship and the staff relationship. People love the staff who have been loyal to them, and they’re like family as well. And a lot of these transitions happen because they want to keep the staff people employed, and they want to keep their clients happy with a trusted advisor.

Audience: This is all excellent information. I just have one tip that I was going to share with everybody that I’ve been doing for the last eight or nine years. You said it’s really important to track your expenses and treat your business like a business, and so I got two credit cards for deductible expenses. One I put “excluded” on, and the other one I have is regular, and so it makes it very easy for me. They’re both equally deductible, but anything that a new business owner who is going to buy my practice wouldn’t have to spend money on, like my car insurance or things like that, I put on the excluded card so I can remove all those expenses from my P&L to value my practice annually.

So, selfishly, I would love anybody here, if I’m going to buy your practice, to do a better job of tracking that stuff. And if you’re going to sell your practice, it’s a lot easier to get a more accurate valuation if you start tracking those things easily.

Heckert: Great idea.

Well, I appreciate your time and your effort. I recommend that you talk to other people. There are a lot of advisors who are doing this on a regular basis. It’s an exciting time for those of you who want to enter a different phase in your career or maybe just offload a business that is holding you back from your true potential. Don’t just think older/younger; think value to somebody else. And that’s where you should approach the whole relationship.