For advisers, selling their practices may be the largest financial transaction they will ever handle.
Having worked with investment bankers, private-equity executives, and registered investment adviser buyers and sellers over the past several years, I would like to share best practices for selling an RIA. These include how to position an RIA in advance of a sale, how to be an educated negotiator and how to command the best price.
BEFORE THE SALE
Ideally, advisers should be making changes to their businesses a few years before they expect to sell and should keep in mind that the best time to often sell a business is when it doesn’t have to be sold.
We tell the advisers with whom we work to keep very clean and clear books and records. Having to explain things later or clean them up before a sale can be expensive.
And we recommend that advisers research the factors that are valuation drivers so that they will be able to move toward activities that enhance valuation and will be more educated negotiators when the time comes for the sale.
There are several good industry books now that highlight the process of maximizing an RIA and lots of firms such as Dynasty Financial Partners that can be sounding boards in the process. Second opinions rarely hurt.
DURING THE SALE
During the sale process, it is important to keep a calm demeanor and a cool head. One common mistake that sellers can make is only talking to one buyer.
Oftentimes, advisers either fall in love with the first story that they hear or they aren’t educated about the various options available. For some sellers, a sale to a financial buyer might be fine, but for others a strategic acquisition might be a better fit, and for others, facilitating an internal sale is the right succession option.
Being thoughtful about the process can ensure that clients and employees get the right outcome and valuations are in line with market comparables.
Another mistake is advisers thinking that they can time a sale.
We hear people say, “I’ll sell in two years.”
Well, who knows what the market will be like in two years? It is best to be flexible regarding timing, as prices can fluctuate widely depending on market sentiment.
There are lots of lenders out there, including Dynasty Financial Partners, to help facilitate an internal transfer of ownership. For larger sellers, an investment banker can help run a professional process.
There are more investment banks now entering the area as the RIA cottage industry continues to grow and evolve rapidly, so advisers who go that route should be sure to interview more than one banker. Regardless of the size, strive to approach the process in a professional way.
In short, it is much like the advice that an adviser would give any entrepreneur client who is considering selling a business. In that regard, advisers need to be sure that they follow their own advice when it comes to selling their own businesses.
Shirl Penney is the chief executive and president of Dynasty Financial Partners in New York.
This story is part of a 30-30 series on smart strategies for RIAs.
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