3 Takeaways from 2016 Financial Services M&A Data
2016 was an exciting/interesting year for the financial services industry, with many changes in compliance and the Department of Labor Fiduciary Rule, broker-dealers being bought/sold or shut down, all of which had a direct or indirect impact on the value of advisor’s practices. In January, Succession Resource Group presented our most interesting findings from deals done in 2016, with record attendance. This infographic highlights three of the most interesting takeaways from SRG’s live webcast. Please feel free to share it with your friends in the financial industry.
Leveraging Your Growth: Equity Compensation Strategies for Advisors
Most financial advisors are aware that a succession plan is important to their business and clients. Based on the last study done by InvestmentNews in 2012, 94% of respondents acknowledged the need for a plan, yet only 7% of those respondents actually had a plan.
Selling Your Masterpiece
As an advisor, at the end of a career, your business is your masterpiece – it’s your Picasso. It’s one of a kind, and in today’s market, you will not have trouble finding someone who wants to take it off your hands and pay you for it. But, there is a huge difference in getting paid, and getting what your business is worth from the best possible successor for your clients. The majority of advisors will not obtain the best deal, and many may not even be selling to the best successor. There are four key obstacles standing between you and the best deal with the best buyer:
DOL Fiduciary Struck Down – Time to Sell
On Thursday, March 15th, the U.S. Court of Appeals for the 5th Circuit struck down the DOL Fiduciary Rule. It is not known at this time whether this ruling will be appealed, or if it will apply to the entire country or just the states residing inside the 5th Circuit Court’s jurisdiction (Louisiana, Mississippi, and Texas). Nevertheless, the decision will have an impact on the value of advisor practices in 2018 and beyond, due to the expected shift in the supply-demand curves for advisor practices that are for sale.
Are YOU Hurting the Value of Your Business
There are many complicated facets to running a service-based business, but the most vital component are the relationships you build every day. These relationships are the basis of value, and, for most, your business is your largest and most valuable asset. The most frequently discussed factors that impact the value of your business are profitability, how consistent your revenue is and the growth rate of the practice.
Audit Risk and Using S Corp for Financial Advisors – The Fleischer Case
As a small business owner and advisor, your attorney or accountant will provide many reasons why you should consider forming a corporation or limited liability company. These reasons include limiting personal liability, the ability to share equity, and possibly reduce taxes. For independent Registered Investment Advisory firms and insurance agencies, the setup and use of an entity is relatively routine – you file and form your business entity, and clients and/or carriers contract with that entity and pay that entity directly.
Maximum Sales Value: The Role of Compliance in the Great Advisor Cash Out
This article was originally published by the National Ethics Association and E&O for Less on February 26th, 2016 and written by Harry J. Lew, NEA Chief Content Officer.
Revenue Sharing: Variable Comp and Your Value
We recently spoke with an advisor who generated $10.5 million in annual revenue and was contemplating the sale of his business. Like many, he expected a premium sale price/valuation given the size of his operation, his radio show that generated a consistent stream of new business, and being located in a very desirable market. Surely his business was worth the $30 Million he was expecting, right? The unfortunate part of the story is that, even though he had built a large “enterprise” and was the sole owner, he compensated all of his employees on an eat-what-you-kill (EWYK) model paying them a percentage of gross revenue for the book they serviced, leaving only a fraction of the total gross revenue to the owner (approximately $500K annually). Not exactly what you would expect from a $10.5 million business and would make a $30 million asking price seem ludicrous given the free cash flow.
Building a More Valuable Practice – Tip #3
Tip 1 | Tip 2 | Tip 3 | Tip 4 Growth is King One of the most important drivers of value in any business is growth. Historical growth, while no guarantor, is a useful proxy/tool for projecting a business or asset’s ability to produce revenue in the future. As a buyer, you will pay more for a practice that is growing each year than one that is getting smaller. One of the biggest mistakes advisors/reps/agents make is waiting too long to sell their businesses, often having contemplated selling for several years before they finally made the decision. By the time many decide to actually sell the business, they have been coasting for a few years, causing their growth to stall or even decline – making it a suboptimal time to sell. For financial service practices, growth of the business can happen in three specific ways. Anyone contemplating selling their business, or a buyer looking at practices to acquire, should pay attention to the following growth metrics.
9 Tips to Prepare Your Business for Sale
Depending on what source you look at, the average age of an advisor in the financial services industry is anywhere from 51-57 years old. While that would typically leave plenty of time until the average age of retirement, the average age of an advisor selling their business is much younger, most often occurring near age 59. This is due in large part to the long-term seller involvement that is ideal in the sale of a professional services business, ranging from as low as 12 months to as long as 5 years. While you may not sell your business, you will leave this industry – planned or unplanned. The better prepared you are for your eventual transition, the happier your clients will be with the process, and the more you are likely to get out of it (financially and emotionally).