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The Financial Implications of Selling Your Practice

Prior to selling a financial advisory practice, along with selecting the right buyer, it’s important to be knowledgeable about the financial aspects, including: price versus value and the aspects of the deal.

Price Versus Value
To begin, it’s important to know the difference between valuation and price. For example, you may think your practice is worth a certain dollar amount because of the hard work you have put into it and the wonderful clients you have, however the valuation may show otherwise.

Valuation looks at the entire enterprise value of the firm based on the methodology that is most appropriate for a given situation. Most valuation approaches are classified as: income approach (net value plus future potential); market approach (comparison to similar practices); and asset-based approach (tangible net assets determine fair market value).

While the debate continues as to which is best, and rules of thumb are suggested, the best advice is to seek multiple valuations.

When preparing for your valuation, the following factors are often key determinants for buyers and lenders:

Age of your clients. If a large number of them are nearing retirement, they may be considered less valuable than younger clients who are in the accumulation phase.

Number of clients. A smaller number of clients with higher net worth are easier to manage than a large number with fewer assets.

A buyer will also look at the current profitability of your firm and the amount of growth you have experienced over the past years. Equally important will be how you manage your business. For example, fee-based income is more predictable and looked at more favorably by lending agencies.

Aspects of the Deal
How you are willing to structure payments is an important element of the sale and can affect the buyer’s and loan company’s willingness to participate. Unfortunately, there is no boilerplate formula. On average payment terms were split between three payment types:

  • Down payment: 36 percent
  • Promissory note: 55 percent
  • Earn-out: 9 percent

Advisers need to keep in mind that a sizable down payment may be impractical because the assets are intangible. The bank can’t repossess a book of investments.

However, there are institutes that are set up to make loans of this type. The buyer or seller might also contact his or her B/D or custodian to see if it has a program available.

The promissory note allows the seller to receive fair value over a reasonable amount of time. Most sellers are paid in full within three to five years.

The earn-out compensates the seller a percentage of future revenues based on future performance. Performance can be based on gross revenue, AUMs, net acquired assets or any other measure both parties agree too. It’s a good way for buyers to be protected against an under-performing firm or sellers to receive the full amount of its worth.

The important thing is to set up a deal that you feel okay with and the buyer will be able to find funding for.



Phil Flakes
Succession Link
San Diego, Calif.


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Letting Go of Relationships

Compared with professionals in other industries, financial advisers typically enjoy uniquely satisfying relationships with their clients. One reason is that “clients for life” is more than a catchphrase. Given the myriad of critical financial issues, life circumstances, and market volatility that can occur in any 10- or 20-year period, it’s no surprise that deep relationships develop.

But what happens when it’s time to let go of these relationships so a new adviser can take over?

Time for transition
No matter how competent the new adviser, nor how well honed his or her relationship skills, the new adviser is often stepping into a situation where both the original adviser and the client are grieving the loss of the relationship. Two things can happen: in the healthy approach, the client and the original adviser mutually agree to let go of the past and foster the development of the new relationship. In the unhealthy approach, the client and/or the adviser holds on to the existing relationship for dear life, which could undermine or even sabotage the relationship with the new adviser.

For example, it’s not unusual for the original adviser to think that his or her way of doing things is best. Although a new adviser may do some things similarly, the likelihood that his or her way of doing business will be exactly the same is small. That’s true even when the new adviser is the child of the transitioning adviser. If the original adviser feels the need to swoop in and mediate, the relationship between the client and the new adviser certainly won’t get off on the right foot.

So what can advisers transitioning out of the business after decades-long relationships with clients do?

  • Acknowledge that leaving one’s career may create a sense of loss. For some, you may even go through a grieving period similar to when you lose a loved one. In such cases, it may be tempting to keep tabs on client relationships. If keeping tabs is purely personal or “golf-based”—fine. But the original adviser should avoid interfering with the professional relationship between the client and the new financial adviser.
  • Those transitioning out of the business should seek the counsel of those who have experienced the same process. Sometimes the transition out of a long-term career can lead to depression, especially in the last third of life. Another adviser who has already gone through the transition process may provide a good sounding board.
  • Plan for a transition early. Both the original and the new adviser should budget ample time for joint meetings with clients to transfer knowledge and to foster the transfer of the professional advisory relationship.

The bottom line is both advisers must do what’s best for the client—even when it means letting go.

Joni Youngwirth_2014 for web


Joni Youngwirth
Managing Principal of Practice Management
Commonwealth Financial Network
Waltham, Mass.

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Is Retirement Catching? Financial Advisers Might Soon Find Out

There’s a paradox in our industry. On one hand, we worry at the number of advisers choosing to “die with their boots on” and neglecting to put an effective succession plan in place. On the other hand, we worry about reports like the one from Cerulli Associates, which suggests that more than one-third of U.S. financial advisers are planning to leave the business over the next 10 years. Once those boomer advisers start retiring, could we see a shift tantamount to Malcom Gladwell’s The Tipping Point? It’s possible—and it could come sooner and faster than predicted.

What might hasten advisers’ retirement?
There are a number of changes taking place both in our industry and in boomer advisers’ lives that could lead them to catching the retirement bug sooner than they expected to:

  • Although many boomer advisers imagined themselves adopting a lifestyle practice, the ripple effects of various regulations, including the Department of Labor’s new fiduciary rule, may cause some to stop and rethink what the future looks like and if they want to go through the hassle of making necessary changes to their practices. It might be easier to get out while the getting is good.
  • Advisers of a certain age may begin to notice that lifelong colleagues, associates, and friends no longer attend industry conferences. These advisers are often the oldest ones at these events, and it may cause them to think twice about attending in the future. This can start them on the slippery slope to falling behind.
  • Increasingly, industry media are focusing on the benefits of technology to our business. Unless they have been diligent about keeping up with the technology revolution, tenured advisers may not be motivated enough to continue learning, leading them to fall even farther behind.
  • Clients, family and friends may increasingly ask boomer advisers when they are going to retire, while former colleagues regale them with stories of exciting vacations to faraway places. Advisers may start to realize that there’s less time remaining in their lives to do the things they’ve always wanted to do.
  • Both physical and mental health become concerns the older one gets. As mental acuity diminishes, advisers may be asked to retire for the good of the business. Or, nagging aches and pains may need medical intervention and extensive recuperation time.
  • When a spouse retires and wants to do things together or needs medical or physical assistance, advisers may be pressured to leave the business.
  • Valued clients may begin to pass away. If these are the same clients from whom the adviser derived a sense of purpose, he or she may feel dissatisfied with the business.
  • Given that the next generation of clients often doesn’t retain their parents’ advisers, and prospects typically want an adviser who will “outlast” them, assets under management may begin to decline. Advisers know that this ultimately affects the value of their business in a negative way, so they may choose to get out early.

This is the reality of growing older in a demanding and evolving industry. And though we’ve tended to believe that many aging advisers aren’t ready to throw in the towel, experiencing one or two of the circumstances on this list can make an adviser susceptible to catching the retirement bug.

But it’s not all bad. Some may be lucky enough to discover that there’s life after being a financial adviser.

Joni Youngwirth_2014 for web


Joni Youngwirth
Managing Principal of Practice Management
Commonwealth Financial Network
Waltham, Mass.

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Turning Midlife Uncertainty into Midlife Opportunity

Financial planners know that traditional retirement is a dying concept. As clients are living longer, healthier lives, a new phase of life is emerging—that time after ending a prolonged working phase and before truly slowing down. It’s a time when many middle- to late-age adults are focusing on making an impact, building purpose, and creating a legacy.

According to social innovator Marc Freedman, it’s the time for an encore career, and the organization he founded, Encore.org, is helping millions of adults make those encore careers not just wishful thoughts, but realities.

Freedman will be presenting at the Financial Planning Association’s Retreat 2016 at the Wigwam Resort in Phoenix, Ariz., April 25-28. Register before March 18 to get $100 off.

1. Encore.org is building a movement to tap into the skills and experience of those in midlife and beyond to improve communities and the world. What inspired you to create this movement?

The original inspiration was to provide more caring adults and human capital in the lives of young people who were growing up against the odds. I’d been involved in the first significant study that had been done on the Big Brothers Big Sisters program, and it showed tremendous benefits for young people who were matched with a mentor, but there were half as many kids on the waiting list for the program as were actually being served. And that raised the fundamental question about the untapped talent in society.

And that started this journey, because as soon as you start thinking about the untapped resources of talent in the country today and even more so in the future, it’s hard not to land on older people, so many of whom are looking for greater purpose. And they have a lifetime of experience and the benefits of even greater longevity. It seemed like there was an opportunity in the very specific sense of trying to improve the lives of kids, and at the same time improve the lives of older people who were involved themselves and oftentimes had a deep need to be needed.

So that was the beginning of this idea that there was a great twofer in engaging older people in ways that would build purpose and legacy, and an opportunity for people to live not just longer lives, but lives that continue to matter.

2. What role do you feel financial planners can play in the Encore movement?

An enormously important role.

Research we did last year showed that 4.5 million Americans are already in an encore career—a second act at the intersection of passion, purpose, and a paycheck—and that 21 million more give top priority to following in their footsteps.

And these encore careers, these second acts, last about a decade. So that’s 25 million people who could contribute something like 250 million years of talent to solving significant needs, and yet of the group that’s trying to go from aspiration to action, the 21 million, every time we poll them or do focus groups, the biggest barrier is not having the financial wherewithal to move from the freedom from work—that old retirement dream—to something that more closely approximates the freedom to work, to have greater latitude to do work that’s closer to their sense of purpose but maybe less lucrative than what they were doing earlier.

I think there’s an unacknowledged transition between midlife and this period that’s not retirement, but really another phase of life and work, and people are not well prepared for that transition. I think financial planners can help them do a much better job of being ready.

3. You will be speaking at FPA Retreat 2016 in April. What message do you hope the financial planners in attendance will take away from your session?

That the intersecting longevity and demographic revolutions are producing a new map of life— one with an entirely new period of productivity in what used to be the retirement years. And that’s an opportunity not just for individuals who are lucky enough to be at that phase today, but for younger generations who need to plan for a longer distance race than those of us in our 50s, 60s, and 70s today ever thought was possible.

And that ultimately, if the financial planning profession and other parts of society help this group realize their desire to continue to be productive, engaged, and living meaningful lives, that we’ll all benefit, and that we’ll have a richer, more productive society now and for generations to come.

Look for the Journal of Financial Planning’s full interview with Freedman in the April issue.

Schulaka Carly_resizedCarly Schulaka
Journal of Financial Planning
Denver, CO

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Anticipating Change in Your Business

Nothing is predictable—in life, the financial markets or our industry—except, of course, change itself. Let’s explore a few somewhat predictable events that tend to bring change, for better or for worse, to advisers’ practices.

“Man, Woman, Birth, Death, Infinity”
If you recognize that quote, you’re probably in your 60s and remember the popular TV show Ben Casey. The series opened with the elder professor teaching his physician protégés about the path of human existence. From the birth of a child through adulthood, procreation, health issues and ultimately death, the trajectory of life is fairly predictable.

Whether they happen to you or a family member, colleague, employee, client or friend, these life events can have an impact on your business. For example, the birth of a child may prompt a young employee to quit work or ask for paternity leave. The 60-year-old adviser may take time off when her first grandchild is born, while the 40-year-old might buckle down and focus more than ever in anticipation of college expenses ahead. When you think about it, the path of human existence is constantly affecting your practice in some way, shape or form.

Leases, Partnerships, Growth, Industry Evolution
You haven’t heard that list on any TV show, but these factors also lead to change at regular intervals throughout the life cycle of a financial advisory business.

  • The end of a lease. I’ve noticed that a lease coming up for renewal can be a crossroads for many advisers. For one, it may present an opportunity to buy the office building; another may see it as a chance to gain space for targeted growth over the long term. One adviser will simply renew the current lease, while another may take the opportunity to minimize office expenses.
  • A shift in a partnership. Partnerships evolve, too. As one partner experiences change due to personal factors such as those mentioned above, it can be like shifting tectonic plates in the partnership. Say one adviser has a health scare and the more reticent partner takes the helm of running the business. The emotional dynamic caused by the shift is palpable. At such junctures, lifelong relationships between colleagues can unravel or thrive.
  • Business growth. Whether an adviser’s success is due to skill, geography, luck, inheritance, passion, the market or other factors, at some point, it becomes clear which firms are consistently growing and which level off. In either case, inertia kicks in; the business in motion tends to stay in motion.
  • An evolving industry. Like individuals, industries are born, change and pass away. Time will tell how long the financial advisory and planning industry endures. Advisers who joined the profession 40 years ago, 20 years ago and today will face very different circumstances to which they must adapt.

What Changes Will Your Practice Confront?
Change is constant and often predictable. But it’s easier to see that when you’re looking in the rearview mirror—just ask any adviser in the second half of his or her career. For those still in the early stages, it’s worth keeping an eye out for all the predictable changes down the road. As the saying goes, we don’t get hit by the things we see coming!

Joni Youngwirth_2014 for webJoni Youngwirth
Managing Principal of Practice Management

Commonwealth Financial Network

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Beyond Boredom: 3 Steps for Refocusing Your Career

BlogPic414_Page_1I am seldom surprised at the types of challenges that advisers say they are experiencing because I have coached them for over 10 years, but in a recent Solutions Session, I heard a challenge that I must admit was unique.

Lori K, a veteran financial adviser with over 20 years in the business said, “My number one challenge is…well..that I’m bored,” she said emphatically.

I probed a bit.

“What exactly do you mean–bored with the work itself or the industry overall?”

She shared with me that she literally could retire because she was at “retirement age” but that she didn’t want to retire yet she was finding that she didn’t have the motivation she needed to grow her business any longer. Frankly she just wasn’t inspired to do any more than she absolutely had to.

I paused briefly before replying, “Lori, what you need is to get beyond your boredom.”

Knowing that I now had her attention, I took her through a series of questions summarized by the following:

Step No. 1: Find Your Motivation
“Why are you in this business?” I asked, seeking for why she was sticking with her career choice despite not wanting to retire.

“I wouldn’t know what to do with my time,” she responded. Often times the first response to this question isn’t the “real” answer.

“Let’s come up with your top five reasons for staying in this business,” I told her. This is what she came up with:

1. I don’t know what I would do with my time if I wasn’t an adviser
2. I like to stay current with the market
3. I like to make money
4. My clients have become friends and I don’t want to leave them by retiring
5. I like finding out what they need most and helping them solve their biggest financial fears

Step No. 2: Find Your Passion
Once I knew what motivated her I needed to know which one of those motivations was the most important so we could identify her passion. When I asked her of those top five motivations which one she believed to be the most important, she said, “I like finding out what my clients need most and then help them solve their biggest financial fears. That is the most fun and rewarding for me!”

She went on to give an example of a high net worth client that had sold his business for $30 million. Thinking that he had no cares in the world, she was surprised to learn that his biggest fear was when he died passing that money along to his son and having his son spend it irresponsibly. Lori replied that she was passionate about solving his challenge with/for him and becoming involved in helping him develop a strategy for managing his estate as well as educating his son about responsible money management.

Step No. 3: Find Your Mission
“If this is your greatest passion, then why don’t you make it your mission to help out all of your clients by finding out what their No. 1 fear is when it comes to their money and help them with the solutions?” I excitedly asked.

“That’s it! That’s what I am going to do,” she exclaimed. “I’m going to help them before I retire. Just thinking about this makes me want to get started right away. Thank you.”

Although each adviser has their own motivation, passion and mission for their business, all advisers must know what they are. Once you know what yours are start working towards fostering and encouraging them. Sometimes just rethinking why you decided on this career path and what you find most exciting or worthwhile about it can spark your enthusiasm and help push boredom aside.

If you read this article and are interested in hearing Lori’s story in the one-hour audio Solutions Session titled Turing Obstacles into Opportunities, email Melissa Denham at melissa@advisorsolutionsinc.com or schedule a free complimentary consultation to discuss how to get beyond boredom with your practice; email me at dan@advsorsolutionsinc.com.

I can help you put the passion back into your practice!

Dan FinleyDaniel C. Finley
Advisor Solutions
St. Paul, Minn.

Editor’s Note: Once you determine what your motivation, passion and mission are, learn how to better foster your relationships with the clients that remain with you with an FPA webinar titled, “Engagement Standards: Mastering Ideal Client Relationships,” by Business Coach Tracy Beckes.

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Retirement Readiness: Beyond the Numbers

The word “retirement” is a growing enigma. In fact, the Americans’ Financial Security: Perception and Reality survey conducted by The Pew Charitable Trusts indicates that only 26 percent of Americans view retirement as a period in life when they stop working completely. Twenty-one percent of survey respondents said they are never planning to retire, and 53 percent anticipate doing something else, such as working at a different job. Some will work because they need to and others because they want to.

It’s clear from these results that boomers are redefining what retirement means. In time, we will likely have either a new definition or a new word to describe it. In any case, financial advisers will need to help their clients prepare for this “new” retirement. To do this, you’ll have to start looking beyond the numbers.

Emotional Readiness
While the masses may be unprepared financially, there’s an equally large concern that pre-retirees are unprepared emotionally. As financial advisers, you know these individuals. They’ve saved carefully and certainly have enough money to support their needs in retirement. But they may have no clue as to how to replace the benefits that work can provide to most people. These benefits include some combination of:

  • A sense of purpose
  • Financial reward
  • Status
  • Time management structure
  • Source of social contact

Woe is the person passionate about work who doesn’t attend to this critical dimension of life satisfaction and fulfillment! And that’s just the tip of the iceberg. The replacement of work is just one of many factors to be considered. Others include:

  • Attitude toward retirement
  • Family responsibilities—whether that means caring for an aging parent, the return of adult children or the impact of grandparenting
  • Health perception in different stages of retirement
  • Adaptability: the requirement to change increases rather than decreases with age

Many quit their jobs only to wallow in the muck of having no vision or plan for making the next chapter of their lives a continuation or enhancement of success and satisfaction. Given this, how do you help your clients truly prepare for retirement?

The Role of the Financial Adviser
Although Retirement Options identifies 15 dimensions of retirement success, only 1 dimension deals with financial security. As financial advisers, you’re in a unique situation to help your clients prepare for both the financial and nonfinancial aspects of retirement readiness. This role ranges from “do no harm” to formally coaching clients to prepare for the next life stage (even when it means the client continues to work). Between those two ends of the spectrum, you can, for example:

  • Share resources such as books and websites that focus on all aspects of retirement readiness
  • Offer a seminar on holistic readiness
  • Write about the importance of thinking about retirement in a more comprehensive way than just financially (in letters, newsletter articles, white papers, e-books, etc.)

Be a Role Model
As you see your clients address how to make the next stage of life successful, isn’t it interesting that many of you are tackling this same issue personally? Perhaps the most authentic way to enlighten others and increase awareness about the importance of planning is to apply your recommendations to your own life. Be a good role model by creating your own retirement vision and plan for a fulfilling next chapter of life.

Joni Youngwirth_2014 for web

Joni Youngwirth
Managing Principal of Practice Management
Commonwealth Financial Network
Waltham, Mass.