Grow Your Firm Without Limiting Your Future Exit Options
Watch the Replay Are Your Growth Decisions Expanding or Limiting Your Future Exit Options? Many advisors focus on growth without realizing the structural decisions they make today can shape their future exit options. In this on-demand webinar, Succession Resource Group explores how growth-stage RIAs and independent advisory firms can increase enterprise value while preserving strategic flexibility. Learn how firms position themselves to remain scalable, transferable, and attractive in today’s M&A market, while keeping the door open for internal succession, a future sale or merger, capital investment, or long-term independence by choice rather than default. Download the Presentation Deck Here Download Speakers Host David Grau Jr. MBA CEO/President Paper-plane Linkedin-in Host Kristen Grau, CPA, CVA, CEPA Executive Vice President Paper-plane Linkedin-in Host Parker Finot Director of Transaction Advisory Services Paper-plane Linkedin-in
Why Relying on Your Broker-Dealer to Sell Your Practice Is a Costly Mistake
Why your broker-dealer is not a neutral partner in your exit, and why home office referrals often fail. Many advisors believe that when it’s time to transition their practice, their broker-dealer’s home office team will actively help them sell their business. After years of interacting with relationship managers, home office consultants, practice management specialists, and OSJ leadership, it’s natural to assume that: They know your business. They know your goals. They care about your success. They’ll help you find the right buyer when you’re ready. Seller Advocacy. Your Sell-Side Partner. Sell Your Book of Business or Financial Advisory Practice with SRG See Service Home office representatives often feel like an extension of your practice. They attend your conferences. They support your growth initiatives. They review your business metrics. Some even position themselves as strategic consultants or sounding boards. When they offer to “connect you with a few people,” it can feel like genuine advocacy. This leads advisors to believe: “My home office wants to help me transition successfully, and they will connect me with the right successor when the time comes.” But this belief is built on a misunderstanding of what the home office is designed to do. Their job is not to manage your exit. Their job is not to evaluate buyer fit. Their job is not to find you the best deal. And most importantly: Their job is not to represent your interests. Their job is to retain assets, not to help you leave. This creates a dangerous misconception for sellers, because trusting your home office to guide your exit often leads to the exact opposite outcome you want: poor successor fit mismatched introductions delays and false starts underinformed buyers reduced valuation wasted time stalled transitions and structural misalignment In other words: good intentions, bad incentives. The Reality: Home Office Teams are Not Your M&A Parter While home office professionals may genuinely like you and want to be helpful, their fiduciary duty is to their employer. Not to your sale, not to your clients, not to your employees, and not to your retirement plan. Below are the key reasons why relying on your broker-dealer to help with your exit strategy is almost always the wrong move. 1. Home Office Professionals Are Incentivized to Retain Assets This is the most important point. Broker-dealers make money from assets, production, product placement, and technology usage. When you exit your business, the firm risks losing those assets, that revenue, and all associated advisor economics. So while the home office may want to “support” you, their version of support is very specific: Keep the assets where they are. This is not the same as: finding you the best buyer maximizing your valuation protecting your timeline aligning culture and client philosophy ensuring your staff is supported giving you a clean or flexible exit Their job is to protect the firm, not enhance your exit strategy. 2. Home Office Referrals Are Strategically Motivated, Not Seller-Centric When a home office representative says: “I know some advisors I can introduce you to,” What they usually mean is: “I know some advisors we want to keep or recruit.” Home office referrals are based on: which advisors they want to retain which advisors are loyal to the BD which practices are growing which advisors they want to “strengthen” which advisors they’re recruiting which offices they want to protect from leaving who they believe will keep the most AUM on-platform These referrals are not based on cultural alignment, client compatibility, operational fit, deal structure preferences, buyer financial readiness, successor experience, or long-term service philosophy. The home office’s job is to recommend buyers who will stay— not buyers who are the right match. This is a conflict of interest hidden behind friendly support. 3. Home Office Introductions Lack Process, Screening, or Qualification The typical home office introduction is typically blind. No valuation review. No practice analysis. No buyer readiness assessment. No disclosure of buyer’s capabilities. No examination of client demographics. No buyer/seller compatibility analysis. No assessment of culture or service model. No review of deal structure preferences. No financial vetting. This creates serious problems from awkward mismatches to wasted time to repeated dead ends. Succession Resource Group has supported sellers who received zero meaningful referrals from the home office for months. Others received only one referral, and it was not even close to a fit. Some received referrals that were actually recruiting targets, not actual buyers. This is not a process, it’s a hope. Are You Ready to Exit? Download SRG’s Seller Readiness eBook 4. Home Office Support Delays Your Timeline Because home office referrals are sporadic, informal, and unstructured, sellers experience: long gaps between introductions buyers who show up unprepared deals that start but never progress repeated back-channel conversations long delays with no traction stalled negotiations transitions that fall apart after months of waiting What feels like “support” often becomes paralysis, not progress. Most advisors lose months, sometimes years, waiting for the home office introduction that will “change everything.” It rarely does. 5. Home Office is a Solid Resource. Just Not One for Finding Your Buyer Home office employees can be extremely useful for: Data gathering Pulling client segment reports Practice diagnostics Compliance guidance Technology updates Preparing transition paperwork Historical production review Team structure analysis But they shouldn’t (and often cannot) conduct a successor search, evaluate buyer financial readiness, maximize your asking price, provide neutral guidance, prepare your business for sale, protect your confidentiality, manage buyer negotiations, structure a deal, or manage your legal risk. They are support partners—not M&A specialists. And they represent the broker dealer— not the seller. 6. Advisor Loyalty to Home Office Creates Delays, Lost Value, and Damages One of the most harmful, yet least discussed, drivers of this myth is advisor loyalty. After years or even decades with a broker-dealer, many advisors feel a moral responsibility to “give the home office the first shot” before involving a professional succession partner like SRG. It sounds reasonable. “They’ve always supported me. I’ll let them try first, and if that doesn’t work, I’ll bring in a consultant later.” But this instinct, while emotionally understandable, is structurally dangerous. Here’s why: 1. By the time you realize it’s a bad plan, you’re already in too deep. Home office introductions feel promising at first. A warm conversation here. A possible peer match there. Maybe a potential buyer raises their hand. But because there is no process, no structure, and no vetting, the advisor has already invested months, sometimes a year, has shared superficial practice information, has engaged in
How to Maintain Client Experience and Retain Staff When Selling to an Outside Buyer
A practical roadmap for readiness, people, and a smooth client transition Selling a financial planning practice is not just a transaction. It is a change event that touches clients, staff, regulators, technology, and your own identity as the founder. The advisors who feel best about their outcome tend to do two things well: Prepare the business like an acquirer will run it tomorrow. Communicate the transition in a way that protects trust and continuity. Why “seller readiness” is the real deal leverage Many owners think “getting ready to sell” starts when a buyer is identified. In practice, it starts much earlier, because early preparation gives you options: tax planning, negotiation leverage, cleaner due diligence, and a calmer client transition. SRG’s dissolution guidance recommends beginning 12 to 24 months before close to allow time for tax optimization, buyer negotiation, and client transition planning without rushing. A simple readiness checklist that buyers actually care about Before you name a price or talk terms, start by getting your house in order. SRG’s Seller Readiness eBook highlights several practical pre-sale actions: Verify and document internal processes. Shift as much revenue as possible toward recurring sources. Reduce overhead and eliminate long-term obligations where possible. Create documentation and manuals for core workflows. Assemble your M&A team early. One more important point: avoid casually floating the idea of selling around your network. When you are ready, leverage a structured process and an advocate who can screen candidates thoroughly. That matters because you only sell this business once. Your timeline and process should be built to protect clients and reduce the risk of a rushed decision. The transition plan is not optional Even in a strong market, sellers can underestimate the work required after the deal terms are signed. A transition plan is how you protect enterprise value after closing, because retention is where the economics are either earned or given back. A typical relationship transition often spans 6 to 18 months and can require hundreds of hours of transition-related support time. That benchmark is a useful anchor because it signals realism. Selling is not an event. It is a structured handoff. Your staff can make the deal easier or harder If clients are the revenue engine, staff are the continuity engine. They hold systems, workflows, relationships, and culture. That is why employee communication is one of the most sensitive parts of the process, with real implications for morale, reputation, and legal risk. When to tell the team In many deals, you need staff involved before a transaction is complete because due diligence requires data gathering, reporting, and operational support. At the same time, timing matters. Tell staff too early and you can create uncertainty. Tell them too late and you can fuel rumors. Clear, definitive messaging reassures employees and helps retain top talent. How to tell the team A strong best practice is to communicate face-to-face first. Avoid using email, phone calls, instant messaging, or text for the first conversation. A helpful structure is: Individual conversations first, so people can react privately Then a group discussion to reinforce consistent messaging and create a forum for questions What to say so you keep people You do not need a perfect script, but you do need clarity. Cover: why you are selling what the sale means for them what is likely to stay the same (location, roles, compensation and benefits, service model, workflows) the expected timeline (due diligence, close, what happens after) Also consider retention bonuses for key employees and incentives for the added workload your team takes on during due diligence. Lack of buy-in can create friction for buyers and the deal. Client communication: protect trust with sequencing and clarity Clients do not need every detail. They need confidence, continuity, and a clear plan. Effective communication maintains trust and continuity, reinforces what will remain the same (services, relationships, points of contact), and outlines next steps and timeline. Plan first, then execute Communication planning is a phase, not an afterthought. Key pre-work often includes: identifying stakeholders developing a notification timeline drafting the client letter with buyer collaboration preparing transition paperwork building call scripts and meeting plans Be mindful when sharing client-specific information. Only disclose what is necessary for service delivery or compliance purposes, and protect sensitive data throughout the process. Sequence communication to reduce confusion A practical sequence is: regulators custodians clients This sequencing helps ensure you are prepared to support the transition when clients hear the news. Timing expectations that reduce surprises Written notice typically goes out immediately after close, and should not be delayed. For key relationships, plan to call priority clients, schedule introductory meetings with the seller and buyer, and then provide transition paperwork. Operational continuity: the unglamorous details that keep clients calm A transition can fail because of small operational mistakes that create friction for clients. Office and system updates matter, such as: redirecting phones and emails forwarding websites and ensuring portals work updating access controls and permissions keeping workflows stable during the handoff One important caution: implementing changes too early can create privacy issues, confuse clients, and create costly reversals if the sale does not close. Compliance and wind-down: avoid avoidable risk after a sale A sale does not eliminate your obligations overnight. Recordkeeping, data security, and regulatory procedures still matter after close. Maintain records for the required statutory period and secure client data appropriately. Also remember that regulatory filings do not automatically dissolve the underlying business entity, and filing too early can create problems during the account transition. Your stakeholders matter, but they need to be used at the right time Sellers should not do this alone. The right stakeholders improve outcomes and reduce risk, including: staff legal counsel tax and accounting professionals trusted partners who can provide perspective an experienced advocate to manage the process and screen buyers When used correctly, the people around you do not create noise. They create clarity. Conclusion: sell with clarity, not urgency
Should Financial Advisors List Their Practice? The Truth Behind RIA Practice Listings
The Truth About Listing a Financial Advisory or RIA Practice — And Why It’s a Strategic Advantage, Not a Weakness. For many financial advisors and RIA owners, the idea of “listing” their practice triggers an immediate sense of resistance. It can feel public, vulnerable, and even risky. Some envision a Craigslist-style listing that signals desperation. Others fear clients or staff discovering the news prematurely. And nearly every advisor has heard some version of the belief that good practices don’t need listings — the right buyer will just appear. These assumptions have created one of the most pervasive misconceptions in the financial advisory industry. Yet, as SRG’s extensive experience shows, listing your practice is not a last resort — it’s a leadership decision. A strategic accelerator. A valuation maximizer. A risk-reducing mechanism. In today’s competitive advisory marketplace, listing a practice confidentially and professionally is one of the most effective ways to uncover qualified buyers, increase value, and protect clients. Let’s break down the real truth behind the myth. Why the Myth Exists in the Financial Advisor & RIA Space 1. Misunderstanding What “Listing” Actually Means Many advisors imagine a public posting revealing: their name their AUM their client list their revenue their intent to exit In reality, professional listings (like those SRG facilitates) are private, controlled, gated, and fully confidential. Are You Ready to Exit? Download SRG’s Seller Readiness eBook Selling your business can seem like a daunting task. Our Seller Readiness E-Book identifies crucial elements for you to think about as you begin the process of finding your successor. 2. Fear of Optics Financial advisors and RIA owners often pride themselves on stability, trust, and continuity. They fear that listing creates the perception of instability. 3. Desire for Simplicity Selling to a colleague or local advisor feels easier — even if it lowers valuation or increases risk. 4. Believing “Good Practices Sell Themselves” This mentality reinforces the idea that a listing is only for advisors struggling to find a buyer. Each of these fears is rooted in emotional instinct — not reality. The Reality: Listing Is One of the Strongest Strategic Moves an Advisor Can Make 1. A listing is confidential, controlled, and entirely seller-driven. A proper advisory practice listing is not public. SRG’s listing process is intentionally designed for discreet, confidential outreach. Nothing is posted publicly. Nothing is shared without a signed NDA. Your name, your client list, your financials, and your intentions are all protected until you decide otherwise. A listing is not a “for sale” sign — it’s a structured, professionally managed expression of interest designed to attract qualified buyers, not curiosity seekers. 2. Listing expands your buyer pool — and competition directly increases value. One of the biggest risks in a sale is limiting yourself to too few candidates. When sellers only talk to their friend, their junior advisor, or a single referral, they drastically reduce competitive tension — which often translates to: lower upfront value less favorable terms weaker client transition support longer seller obligations A listing introduces strategic choice. It brings in candidates you would never meet otherwise — candidates you can compare, interview, and evaluate. It gives you leverage and a clearer understanding of what the market is willing to pay. 3. Listing doesn’t lock you into anything – it gives you optionality Many sellers think that once they list, they’ve “started the clock” or agreed to sell. Not true. Listing simply opens the door. You can: proceed delay pause or walk away entirely You control the pace. You control the communication. You choose when — or if — you accept any offer. A listing is optionality, not commitment. 4. Listing allows SRG to screen out 90% of unqualified, unprepared, and unaligned buyers. Without a structured process, sellers are forced to field calls from anyone with a passing interest — tire-kickers, undercapitalized advisors, mismatched cultures, and buyers who lack financing. With SRG managing the listing, you never deal with: buyers who don’t meet financial requirements advisors who only want the “top 20% of your book” competitors fishing for information firms with no capacity for transition management This prevents wasted time, misalignment, and unnecessary exposure. 5. Listing allows you to shape the narrative, not react to it. When you proactively list with a structured process, you become the pilot — not the passenger. You determine: How buyers perceive your practice How clients are introduced How staff is prepared How your brand and legacy are represented What strengths are highlighted What risks are managed Without a listing, buyers create their own narrative — usually based on incomplete or inaccurate assumptions. Listing is how you take control of your story. 6. A listing is a sign of good business ownership – not desperation Strategic buyers respond best to strategic sellers. Listings demonstrate that you are intentional, organized, committed to continuity, financially informed, and proactive. This increases confidence – which increases deal quality. 7. A Well-Crafted Listing Attracts Sophisticated Buyers A high-quality listing is not a generic advertisement. SRG creates a professionally structured profile backed by: Certified valuation Financial review Client demographic analysis Transition planning strategy Risk-adjusted value modeling Deal structure guidance This positions your practice as a premium opportunity, not an anonymous listing. In fact, many of the highest-value sales SRG has executed in the past decade started with a listing — because listings generate healthy competition that private conversations cannot. Conclusion: Listing Is Not a Sign of Weakness — It’s a Sign of Intentional Leadership Advisors don’t list because they’re weak. They list because they are: Strategic Responsible business owners who plan rather than react protective of their clients committed to a good transition honoring their family’s financial future protecting the legacy of their firm – including the employees who helped build it maximizing value reducing risk taking control of their exit A listing is not an exit — it’s the beginning of a well-managed, thoughtful, confidential exploration of your options. Used correctly, it positions sellers for the strongest valuation, best buyer, and smoothest
The RIA & Advisor Dissolution Playbook
Dissolve Your RIA the Right Way. Dissolving your RIA is rarely simple. It requires thoughtful coordination across legal, tax, compliance, and client transition steps. Each stage, from initial exit planning and regulatory filings to employee communications, financial wind-down, and document retention, brings unique requirements and potential risks. In this comprehensive playbook, SRG outlines the essential phases of an orderly dissolution, supported by detailed checklists, timelines, and best practices drawn from decades of industry-specific expertise. You’ll learn how to structure the process to minimize regulatory exposure, protect client relationships, and reduce the likelihood of costly missteps. This guide also covers special considerations for RIAs and registered reps, including employee obligations, custodial transitions, tax reporting, and post-dissolution compliance. By following this structured roadmap, advisors can ensure they exit with clarity, safeguard their legacy, and complete the dissolution process efficiently and with confidence. Created by SRG’s team of expert consultants, Kristen Grau, CPA, CVA, CEPA, Nicole Frey, CFP® and Parker Finot, this playbook distills years of hands-on experience guiding advisors through complex transitions—providing the tools, structure, and peace of mind to navigate one of the most significant business decisions with precision and care. DOWNLOAD NOW
When Your Key Stakeholders Want to Help You Sell: 4 Things to Watch For
When your successor, internal buyer or home office wants to “help you sell,” it can be a win or a warning sign. Our latest infographic breaks down four critical considerations every advisor should weigh: Valuation – Will it be fair and accurate or biased toward the buyer? Structure – Are the deal terms designed to protect your best interests? Process – Who’s leading the timeline, and are they moving too fast or too slow? Representation – Do you have someone advocating solely for you? Whether you’re exploring internal succession or weighing a third-party offer, this infographic highlights the hidden risks and the steps you can take to protect your legacy. Download the infographic now to learn how SRG helps you navigate the sale on your terms. DOWNLOAD NOW
A Legacy Preserved Under Pressure
When Time Is Short, the Right Partner Makes All the Difference Succession planning after advisor death is one of the most urgent and complex challenges a firm can face. When a long-time Hawaii-based financial advisor unexpectedly passed away, their family was left with a major challenge: how to transition a complex, high value practice in under 60 days while mourning the loss of their loved one. Without a succession plan in place, the estate faced potential client attrition, lost value, an employee in limbo, a lease payment, and industry regulated complications. That’s when the family reached out to the deceased advisors’ Practice Management Consultant who referred to them to Succession Resource Group for help. The Challenge Following the sudden death of the advisor, the estate was left without a succession plan or an interim servicing advisor in place. The practice itself had a strong revenue base, generating $684,227 in revenue (79.0% recurring) and serving 248 households. However, it faced several immediate and significant challenges. Among these was an active lease obligation with 33 months remaining, adding financial pressure during a time of uncertainty. Coordination with the broker-dealer and regulatory compliance were urgently needed, further complicating the estate’s efforts to stabilize the business. The most pressing concern was the urgent value risk—without swift action and a clear strategy for succession planning after advisor death, the estate stood to lose everything. Compounding the situation was the vulnerability of a key, loyal employee, whose future with the practice was uncertain and at risk. These factors combined to create a highly complex and time-sensitive situation for the estate in identifying and implementing a succession solution. The Strategy In the wake of a sudden death, SRG launched its Seller Advocacy Program to guide the estate through the transition. Despite having limited data and no prior valuation available, SRG quickly created a prospectus that allowed the estate to take immediate action. Through targeted outreach, the team sourced 32 qualified buyers—specifically focused on local options—to ensure continuity and client familiarity. 10 finalists were interviewed and negotiated offers were considered, giving the estate meaningful choices rather than a rushed exit. Importantly, SRG positioned the practice for maximum value—not just a fast transaction—helping preserve the seller’s legacy while protecting long-standing client relationships. By applying their expertise in succession planning after advisor death, SRG brought structure, strategy, and compassion to the business transaction at a time when the family, employee, and clients needed it most. The Results 12% Over asking price 100% Cash down upon closing 3.1% Over industry recurring revenue multiples 33-Month lease obligation assumed by buyer 100% Fee to SRG paid by buyer 100% Staff retained by buyer Don’t Wait for the “What If” Be Prepared. Be Protected. What happens if life throws a curveball? Illness, injury, or worse—none of it waits for the right time. And when the unexpected hits, your clients, staff, and family may be left with more questions than answers. That’s why succession planning after advisor death is essential—not just for business continuity, but to protect everything you’ve worked so hard to build. Secure Your Legacy with SRG’s Contingency Retainer SRG’s Contingency Retainer is a proactive planning service empowers you to make critical decisions while you’re alive and well. You authorize a strategy to protect your business, define your wishes, and ensure your practice is positioned to transfer smoothly—no matter what happens tomorrow. Are You Interested in Entity Support? Let’s Talk. For our Premium and Elite clients, SRG handles this entire process: setting up the publications, securing affidavits, and preparing the Certificate of Publication form, so all you have to do is submit it to the NY Department of State. Book a consultation with our team today and let’s get started.
New York State Society of Certified Public Accountants: Structuring the Deal: Taxation When Selling Your Financial Service Business
December 15, 2020 By: David Grau Jr., MBA, and Nicole Frey, CFPPublished Date: Oct 1, 2020 For professionals planning to purchase or sell a financial services book of business, the most common negotiating points are the purchase price, deal structure, timeline, and financing considerations. These are critical points to discuss and finalize before signing on the dotted line. It’s also important to be aware of the effect of the tax treatment on the deal and know the different tax structures commonly employed. If not structured purposefully, the tax treatment of a deal may unintentionally favor either the seller or the buyer and can have a significant impact on the total value received/paid. Depending on what’s been negotiated, the majority of the sale proceeds may be classified as ordinary income or long-term capital gains. Negotiating this early in the process will ensure that the purchase price can be adjusted up or down to balance the benefit. As a result, the tax allocation of the sale proceeds is one of the key elements of a deal structure and should be considered carefully by both parties. Potential Deal Structures To decide which tax structure works best for the deal, the parties will enjoy some level of flexibility as long as they remain within the boundaries of current tax laws and the objectives of the transaction. The first decision that must be made is what exactly is to be sold (assets and/or equity) before discussing how the purchase price should be allocated to a particular asset or equity or both. The following are the two most common considerations: Asset sale In an asset sale, the buyer selects certain individual business assets to be purchased from the seller, with each asset having a specific dollar amount of the purchase price paid for it and allocated as such in the purchase agreement. This includes the following primary categories (in addition to any tangibles that may be acquired): Personal goodwill: client relationships, rights to revenue, the reputation of the business (i.e., the book of business) Restrictive covenants: nonsolicitation, noncompete, and/or no-serve agreement with the seller. Post-closing transition assistance: services provided by the seller, such as assistance with client meetings, phone calls, emails, letters, etc. Equity (stock) sale Rather than buying individual assets, the buyer and seller may elect to make the seller’s business entity (e.g., corporation or LLC) the subject of the transaction and enter into a sale of the seller’s ownership interest in the entity. The transfer of the ownership in the entity allows the seller to transition all assets and the liabilities of the business to the buyer, including all— contracts, permits, licenses, and registrations. Since both an asset sale or stock sale may ultimately result in long-term capital gains tax treatment for the seller, the choice is influenced greatly by the buyer’s preferences and whether there’s perceived value in buying the business entity. Asset Sale: Categories and Tax Treatment The most common deal structure when buying or selling a financial services practice is a sale of assets, versus an equity-based sale. This does vary based on the size of the transaction; deals involving larger firms will more often employ an equity-based strategy to ensure the acquired business remains a going concern. When purchasing the assets from a seller, it’s important to ensure that both buyer and seller agree on how the purchase price will be allocated for tax purposes, and such meeting of the minds should be included in the purchase and sale contracts. Personal goodwill The majority of the purchase price is typically allocated to personal goodwill—an IRC section 197 intangible asset consisting of the seller’s client relationships, reputation, expertise, and abilities. Year-to-date 2020, the average transaction for financial service professionals allocated 93% of the purchase price to personal goodwill, up from 91% in 2019. For the seller, the sale of personal goodwill should generate long-term capital gains tax treatment and be amortizable over 15 years by the buyer. Post-closing transition support Depending on the extent of the seller’s services to the buyer post-closing, compensation for these services can be either included in the purchase price (typically for limited services such as introducing the buyer to the transferred clients) or be paid in addition to the purchase price (for the seller’s expanded involvement post-closing beyond just transitioning clients). As shown in Figure 1, the average transaction allocated 3% of the purchase price to the seller’s post-closing support, though this allocation tended to be greater on smaller deals. For the seller, they want to ensure only a de minimis portion of the purchase price is paid for their transition assistance, as this portion is labor and taxed as ordinary income, subject to Social Security and Medicare taxes. The buyer, however, generally seeks to allocate more of the purchase price to the transition support, as this portion provides them a tax write-off in the allocated amount, pro-rated for the year in which the services were provided. Restrictive covenants To protect the buyer’s investment, the seller will commonly be required to enter into a restrictive covenants agreement (similar to personal goodwill, this too is an IRC section 197 intangible asset), whereby they promise not to compete with the buyer, solicit the buyer’s employees or vendors, or serve any of the clients the buyer purchased from the seller. In exchange for this promise, the seller will receive a portion of the purchase price as consideration, resulting in ordinary income for the seller and a 15-year amortization by the buyer. Because this asset doesn’t produce a tax-favorable outcome for buyer or seller (relative to the alternatives previously described), neither party seeks to allocate any more than would be required to ensure the buyer has an enforceable contract. Year-to-date 2020, the average transaction allocated 3% of the purchase price to restrictive covenants. Not allocating a portion of the purchase price to restrictive covenants may render the provisions unenforceable and otherwise confuse the intended tax result. Tangible assets Tangibles assets, such as furniture and equipment, are not commonly part of the deal since there’s often little to no value to
The Seller’s Playbook What to Know Before You Let Go
Learn what it takes to successfully sell your financial advisory practice. This session walks through the key steps to prepare your business, navigate the sale, transition clients and staff, and avoid common mistakes. Whether you’re planning to exit soon or just getting started, this webinar offers practical guidance to help you plan with confidence. Watch the Replay Related Resources 10 Tips for Selling Your RIARead the Article → Selling Your Practice with Expert AdvocacyWatch the Replay → Employee Retention Guide for Advisors Read Now → Grab A Valuation We offer a variety of solutions and turnaround times to fit your needs. Join myCompass Our membership club grants you inside tips and opportunities to grow. Review our Seller Services We’re here to ensure you secure the best buyer, price and terms.
Selling to Your Kids? Why Family Deals Demand Extra Scrutiny
Selling your RIA practice to a son, daughter, or other family member might feel like a natural, low-stress transition, because there’s trust and familiarity. Many advisors assume they don’t need the same level of formality required of an outside RIA sale transaction. As a result they may skip a formal valuation, because they aren’t aiming for full value, or considering gifting equity. But this relaxed approach can open the door to tax exposure, compliance pitfalls, and long-term misunderstandings. In fact, intra-family sales demand more structure and care—not less—from both a practical and technical perspective. Here are five details and considerations to keep in mind that make these deals uniquely complex and why they deserve extra attention: 1. Third-Party Opinion of Value Is Non-Negotiable Family transactions are subject to close IRS scrutiny, especially when there are gifts involved or the sale price appears below fair market value. A credible, independent valuation is critical for: Establishing a supportable value of the business. Reporting a defensible value for gift tax purposes Supporting installment sale terms Managing the optics with non-involved heirs or business partners Using a third-party valuation firm ensures the agreed-upon price holds up under audit and provides a solid foundation for tax planning strategies. There are still tools at one’s disposal to influence or control the value, but doing so with an objective starting place—and with the correct strategy—will help ensure the RIA for sale is not recharacterized post-transition. Even if valuation isn’t the founder’s focus, it is still advisable to receive a formal valuation to avoid common post-sale pitfalls. Occasionally, advisors operating under an independent broker-dealer (IBD), inquire about simply ‘putting’ the business in the name of their son or daughter for no additional compensation to avoid formally “selling” or gifting. While it is possible to do at the IBD level, transferring an advisory business that has produced hundreds of thousands or millions of dollars of taxable income over the past decades, especially in an industry with a very active and well-known M&A market, is simply asking to be audited. 2. Alternative Financing Solutions For family business sales, there are unique financing options that can and should be considered. Self-Cancelling Installment Notes (SCINs) can be a powerful estate planning tool when selling to a family member. These notes are similar to a traditional promissory note, with the buyer/family member making payments of principal and interest out of cash flow, over some agreed-upon period. But, SCINs have a unique feature – the note can automatically terminate upon the seller’s death, potentially removing any unpaid balance from the seller’s taxable estate, without creating a tax liability for the buyer (the remaining debt outstanding at the seller’s passing isn’t forgiven, it simply terminates and ‘goes away’). SCINs can be a useful tool for family succession, but their structure must be airtight: SCINs need to include a “mortality risk premium” to offset the note’s cancelable feature – for example, a slight premium on the interest rate The valuation of the premium must be actuarially sound and based on health-adjusted life expectancy The term of the SCIN should be within the actuarial life expectancy of the seller – for example, a note shouldn’t be 20-years for a seller that is 85 years old The SCIN should be properly documented in value. The IRS will challenge and recharacterize notes that lack documentation or are undervalued For sellers with impaired health or shorter life expectancy, this can be an efficient way to reduce estate tax exposure, but it must be coordinated with a valuation professional and tax counsel. 3. Gifting Equity to a Family Member – Employee Gifting the business, partial or full, to a child who is also a key employee raises serious issues under both the gift tax rules and compensation regulations. To qualify as a gift by the IRS, the gift should be detached and disinterested generosity – a tough argument to make when the family member is on payroll. If an owner gave equity to anyone else on payroll, it would clearly be treated as a grant, thus making the argument that a grant to an employee related to the owner should in fact qualify as a “gift” is problematic/risky. Key considerations for gifting: Is the equity truly a gift, deferred compensation, or a grant of non-cash compensation? Is the employee/family member receiving equity for “less than adequate consideration?” Can the gift be split with your spouse? Can a minority interest be applied? Many family businesses are surprised by the gifting/granting considerations and thus get blindsided. Even well-intentioned, informal transfers can trigger unintended tax consequences if not properly documented. 4. Formal Governance Protects Relationships and the Business A key mistake in family transitions is letting relational trust substitute formal governance. When sharing ownership, with ANYONE (especially family), you need: A detailed Partnership Agreement, Operating Agreement, or Shareholder Agreement A buy-sell agreement with clear terms Defined roles and responsibilities for both generations A succession plan that survives death, disability, or divorce Mechanisms for resolving disputes (especially if other siblings are involved) Even if the culture is close-knit, legacy issues, entitlement perceptions, and money create a combustible mix. The hope is that you will never need to consult any of these agreements, whether selling to a family member or anyone else, but it is advisable to have well-thought-out governance documents you don’t need, than the inverse. Clear documentation avoids family blowups later. 5. Don’t Assume One Buyer = One Option In some cases, it may be advantageous to split ownership. For example, gifting minority interests over time while selling controlling interest later or using a grantor retained annuity trust (GRAT) or family limited partnership (FLP) structure to transition wealth gradually while maintaining control. Each of these has technical hurdles but can open up estate planning advantages that a straight sale misses. Bottom Line: Treat a Family Sale Like the High-Stakes Business Deal It Is Selling an RIA to a family member is not a shortcut—it’s a high-wire act, with an audience