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The nuances of a purchase
The nuances of a purchase

Jan 03 2022

The nuances of a purchase

The subtle shades of planning around staffing, communication and processes when buying a business requires an artistic touch.

By Matt Pais

Topics covered

An advisor spends decades building their practice and decides they are ready to sell. And they’ve found a potential buyer — who proceeds to tell them everything that is wrong with their business.

“That does not give a seller the warm fuzzies of, ‘Oh my gosh, I want you to take over my business’ when you’ve been super negative about it,” said Kristen Grau, CPA, CVA, the executive vice president of Succession Resource Group and consultant to a seller who experienced this. “Those types of buyers get rejected 100% of the time because they’ll just go in and get rid of clients or make an offer below market value.

“Buyers need to nurture sellers just like they would nurture a brand-new client that has $100 million in assets under management because that is what they’re buying. The buyer may think this is just a business transaction, but for the seller, it’s much more than that.”

In fact, what may seem like a simple process — you’re selling, I’m buying, let’s do this — is much more complex,
requiring detail and precision to work best for all parties involved.

Staff to support the acquisition

For D. Kyle Atkins, CLU, CFP, a big piece of his acquisition involved making sure he had the support staff to service the clients he was buying. Several months before the deal was finalized with a longtime friend, Atkins, a 24-year MDRT member from Spartanburg, South Carolina, USA, began looking for a client service specialist to help transition the 300 clients who would be coming into the business.

“We may think we can grow without assistance, but it results in the advisor spending too much time on things that are not profitable,” said Atkins, who specializes in wealth management, long-term care insurance, and estate planning for business owners, pre-retirees and retirees, and medical professionals. “If you have people to do all the back-office items, you can focus on meeting with clients and getting off on the right foot with relationship management.”

That support also proved essential for Peter Hill, ChFC, when buying out his manager. Because the seller’s part-time office manager was also working part time for Hill, the 25-year MDRT member from Des Moines, Iowa, USA, was able to hire her full time and leverage the established relationships she had with the newly acquired clients.

“When my new clients called in, they still would talk to her,” Hill said, noting that the clients were somewhat aware of him already because of his relationship with the seller. “It’s just that when they have a meeting, I’m the person involved. That is about as low-key and easy a transition as one could have.”

It’s important to remember, Hill adds, that without maintaining or initiating a relationship, clients you acquire may fall by the wayside. Because to them, the new advisor may just be a name, someone they don’t have a relationship with. Whether it’s the selling advisor, an office manager or a third party facilitating the relationship transition, that communication, with a set of talking points to ensure consistency, is essential. Deferring to the seller’s preferences, Grau says, helps generate ease in the transition that clients notice as well.

Planning and communication

Many questions need to be answered between buyer and seller, notes Hill, whose practice handles full financial planning for individuals and business owners and provides a variety of subject matter experts and services for their network of advisors to use. Will the seller walk away and retire? Or have a period where they help with transitions and continue working? Is this an acquisition or a merger? If the seller leaves, will they have something to keep themselves busy and focused? Will other staff members come with the book of clients? What differences exist between the previous advisor and the new one taking over? Who will handle all responsibilities for the new operation? All of these will impact both the deal and the satisfaction of those involved. (Atkins learned a lesson himself when he acquired two tax practices and realized his own lack of tax expertise made the practices more of a distraction, when all he really wanted was referrals from tax offices.)

That said, there is such a thing as overcommunicating in the last inning, Grau said.

Four weeks before the completion of a sale that she consulted on, Grau — whose company works with thousands of buyers each year and is involved in about a dozen deals each year herself — says the seller canceled the deal because the buyer kept involving more and more people.

“The seller felt like they weren’t selling to the person they had a connection with. Instead, as things progressed, he felt like he was selling to the buyer’s compliance team, broker-dealer back office and attorney, and became overwhelmed with compliance and paperwork,” Grau said. “The buyer spent months trying to acquire this practice, but in an effort to eliminate every risk, he lost the deal. It is critical to be able to ‘read the room’ and understand that inorganic growth does come with some level of risk.”

Profit and process

Of course, before the acquisition moves forward, there are many numbers involved. Based on his experience with his first purchase, Atkins recommends getting a third-party valuation to avoid a seller who believes their book of business is worth more than it is — or just to get everyone on the same page regarding cash flow, taxes and other important aspects of a sale. (Wait until you have final numbers from the past year, Hill adds, so the valuation can be accurate and complete.)

“Personally, I’m very optimistic and always think the deal’s going to work out,” Atkins said, noting that a red flag for him is an offer that seems suspiciously high; a big check doesn’t always line up with an operation that is in the clients’ best interests. “We shook hands, it was profitable, and everything was done fine, but now I wouldn’t buy a practice without a lot of counsel — that can help make sure they’re profitable and think about challenges that we don’t think of.”

One of those angles that advisors may need help focusing on, Atkins says, is defining processes so you can maintain your own systems throughout the transition rather than becoming enamored by the surface appearance of a CRM or referral system and losing sight of what made you successful in the first place.

“There may be some things they’re doing well that can help you,” he said, “but you have to be careful not to get distracted with all these new, great ideas while trying to get the transition done.

“Make it smooth and reevaluate when you’re able to do so.”

What not to do when buying

Grau recommends steering clear of these approaches:

Talking to sellers about price before getting to know them. “While this is a business transaction, it’s also an emotional journey for the seller,” she said. “Coming in and listening and talking to the seller will help buyers move to that next stage.”

Lack of gratitude. “Simply sending a thank-you note once you’ve talked or met with a seller, or writing a quick thank-you email
or sending a small gift, can set
you apart.”

Disrespecting intermediaries. “Some buyers act as if, I don’t care about you because all I want to do is get to the seller,” Grau said. “But brokers get you to the seller. If we were to advance you to the next stage, it doesn’t mean we’re going to speak highly of you. Or we could remove you altogether.”

Looking for a back door to information. “Don’t call sellers in the office and ask about a sale. They might have staff they don’t want to know about a particular sale; be cognizant of privacy and confidentiality.”

Ignoring the emotional and legal details. Some clients may have an emotional reaction to transitioning away from their former advisor, especially when they can no longer discuss their finances with them. “There may be areas you’ve always talked about, but they are no longer your financial advisor, and it starts to be a gray line for many sellers,” Grau said.


Kyle Atkins kyle@atkinsfinancial.com

Kristen Grau kristen.grau@successionresourcegroup.com

Peter Hill p.hill@vfghelps.com