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About SRG

Succession Resource Group is a boutique succession consulting firm based in the Pacific Northwest, serving clients across the country. SRG was founded by David Grau Jr., MBA in 2012 after nearly a decade of helping advisors with valuation and succession planning. SRG's team of experts leverage their industry expertise, combined with best-in-class resources, to help advisors, agents, and accountants manage the equity in their businesses...

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2 min read

Contingency Planning - A key to acquisition success?!

Jan 31, 2024 12:01:32 PM

To start with, let's define the term "Contingency Planning."

Contingency Planning is specifically referred to you creating a plan (a contract) that defines what to do with your business in case of your death or disability (temporary or permanent).

Given the regulatory environment you exist within as a financial advisor, and the limitations that FINRA's continuing commission policy places on you (IM-2420-2), it is prudent to come right out and say it - YOU NEED A PLAN. And not just for the obvious reason of taking care of your clients and extracting the value your family deserves. A contingency plan can be the key to a successful acquisition. 

Here are two major reasons:

1. Most advisor sales/acquisitions have all or a part of the purchase price that is seller financed on an earn-out, promissory note, or combination of the two.

This means the seller is going to loan you money over some period of years. They WILL require that you have a plan in case something happens two years into the deal, and insurance is only part of the solution. They want to know that you are a responsible business owner and have a plan for your own business, so they can rest assured that if something happens, your clients (and theirs) will be left in good hands (and that the balance of the note/earn-out will be paid).

2. Contingency planning is a fantastic way to build your acquisition pipeline.

If you asked 100 advisors who are over the age of 60 about selling their practice to you, statistically you might get lucky and find one that is interested in talking. However, if you asked the same 100 advisors about their contingency situation, you'd find that most know they should have a plan in place, but don't. If you asked them about working together to create some type of death/disability plan, you will get a lot more positive responses. So how does that turn into an acquisition? When I help advisors create these types of plans, my first recommendation is to communicate the plan to the key stakeholders (i.e. the clients, OSJ, BD, spouses, etc.). Once the clients have been told about you and your role the contingency partner, you will be the first person the advisor thinks of when its time to start slowing down.

I have helped many of my clients create two or three of these plans each year, and I can tell you this strategy pays dividends. It will take time, but it is a valuable part of the acquisition strategy. It also provides a great service for the advisors you create a plan with, because the alternative (dying without a plan) makes for a very unfortunate story.

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David Grau Jr.

Written by David Grau Jr.

David Grau Jr., founder and CEO of Succession Resource Group, specializes in succession and M&A consulting for advisors. As a leading M&A consultant with a history of service in the United States Navy, David is recognized as a thought leader and accomplished speaker. He is prominent in the financial services industry, especially on topics related to M&A and next-generation strategies, having delivered over 200 presentations for organizations like the Financial Services Institute (FSI) and FPA.