wealth-management-logo2

Sponsored by:

wellsfargofinet2018_200

WEBINAR EXECUTIVE SUMMARY

What Financial Advisors Need to Know About Their Retirement Mergers and Acquisitions

KEY TAKEAWAYS

  • M&A activity among financial advisors’ practices is expected to trend upwards.
  • Finding the right buyer/seller match is central to a successful merger or acquisition.
  • Advisors are interested in retirement, but struggle with the coming lifestyle changes.
  • Exit strategies and succession planning are common transition strategies.
  • Both buyers and sellers need to communicate with clients early in the transition.

As financial advisors begin to think about retirement, whether it’s around the corner or several years into the future, they are considering how best to transition their practice and their clients to new hands.

 

Making this transition is challenging. It involves determining the right time to exit the industry, identifying the right buyer for the practice, and developing and working on a transition plan that will keep clients and employees alike happy through these major changes.

 

In our recent webinar, John Williamson, Senior Vice President, Innovation & Growth Wells Fargo Advisors Financial Network (FiNet), discusses the various aspects and tasks financial advisors need to consider as they look into selling their practices with an eye on retirement. We’ve summarized the webinar below, but you can also watch the webinar or download a PDF of the summary.

Presenter: John Williamson
Senior Vice President, Innovation & Growth Wells Fargo Advisors Financial Network (FiNet)

Moderator: David Armstrong
Editor in Chief, WealthManagement.com

M&A activity among financial advisors’ practices is expected to trend upwards.

The pace of merger and acquisition activity among financial advisors has risen steadily over the last several years. That trend is expected to continue as the industry undergoes a major transformation driven by a combination of factors, including changing regulations and a generational shift in advisors.

 

Cerulli Associates estimates that about 100,000 financial advisors—approximately one-third of those practicing today—will retire within the next decade. This provides a tremendous opportunity for advisors looking to grow their business, as retirements will impact nearly $50 million in assets managed on an individual basis and $5.8 trillion of total advisory managed assets in aggregate.

47553394_md-update

Finding the right buyer/seller match is central to a successful merger or acquisition.

When selling their practice, advisors need to find the right buyer. A buyer with comparable services and a similar guiding philosophy is more likely to make the transition easier for both clients and employees, ultimately reducing turnover and increasing the likelihood of success.

 

To find the right fit, sellers need to narrow the field of potential buyers to those practices that are similar to their own in terms of size, location, and services provided. The seller also needs to make a nuanced assessment of a potential buyer’s values and culture, including the approach to work, relationship management with clients and colleagues, and advice given.

John Williamson recommends that potential buyers and sellers both engage in networking with other advisors affiliated with their broker dealer. Those advisors interested in a transaction can also look to others within their community and social network for potential matches. Firms like the Wells Fargo Advisors Financial Network offer coaching on networking techniques that can help buyers and sellers connect with and evaluate potential sales partners.

“A drastic change in leadership, decision making, or even communication could alienate older advisors and staff, resulting in a turnover that obviously harms the client relationship.”

– John Williamson, Senior Vice President, Innovation & Growth Wells Fargo Advisors Financial Network (FiNet)

Advisors are interested in retirement, but struggle with the coming lifestyle changes.

A 2017 Alan Newman Research study found that although nearly all advisors had thought about a retirement or succession plan, many had concerns with selling their practices and leaving the workforce.

The study found that advisors between the ages of 65 and 70 viewed age 70 as the right time to retire, primarily for financial planning reasons, including receiving the maximum Social Security benefit and having access to minimum distributions for Individual Retirement Accounts and 401-Ks. Personal financial concerns, such as supporting parents or children, and loyalty to the practice also play into the decision about when to retire.

Financial advisor concerns with retirement

  • Client transition without disrupting the client experience
  • Client attrition during the transition, impacting retirement income
  • Finding the right financial advisor or team to take over the book
  • Lack of experience and familiarity with the process of moving a book
  • Uncertainty with what to do in retirement; change in lifestyle

Exit strategies and succession planning are common transition strategies.

Advisors can decide to approach retirement and transitioning the business in one of four ways: sunsetting, exit strategy, succession planning, or merger.

 

In this webinar, Mr. Williamson focused on two of these strategies most likely to be used by financial advisors: exit strategy and succession planning. Exit strategies are typically structured as asset sales, including down payment and involving bank financing, while succession plans are usually structured as a series of stock sales. Both of these options require that firms engage with qualified third-party specialists who can consult on practice valuation, deal structure, appropriate documentation, and tax considerations.

 

Once the transition plan is identified, the buyer and seller need to identify additional support, including advisors, employees, and potentially the broker-dealer. The buyer will also need to consider what the structure of the business will look like, both during the transition and once it is complete. Mr. Williamson recommends the purchasing practice identify a financial advisor who will manage the transition responsibilities.

Sunsetting
Agreements are formulaic and the terms and conditions are often prescribed by the broker-dealer. The change in ownership is facilitated through a revenue-sharing agreement.
Exit Strategy
A customized retirement plan that takes place over one to five years.
Succession Planning
Transitions a book of business to a financial advisor typically within the seller’s practice. Usually done in a phased approach over 5 to 10 years.
Merger
The joining of two or more practices into a single practice with a similar business culture and client experience approach.

“In the absence of detailed communication to customers, they are going to make up their own narratives as to what’s happening, which can lead to misunderstandings and even concerns.”

– John Williamson, Senior Vice President, Innovation & Growth Wells Fargo Advisors Financial Network (FiNet)

Both buyers and sellers need to communicate with clients early in the transition.

Effective communication to clients is just as important in the success of the transition as the terms of the sale and logistics. Buyers and sellers should communicate early and often with clients on both sides of the transaction to ensure they are aware of plans and to avoid misunderstandings.

 

Broker dealers and third-party experts like the Wells Fargo Advisors Financial Network can help practices create a detailed schedule of timing and content. In addition to general communication from the practices, advisors need to make it a priority to reach out to clients, sharing exciting developments and how the changes will enhance the client’s overall experience.

Additional Resources

Please visit our Advisor Retirement Center for additional content to help you
understand the challenges, opportunities & trends affecting the industry.

how-age-impacts

Financial Advisor Business Transition Trends

A recent research study by Alan Newman Research (ANR) and Wells Fargo Advisors Financial Network included a focus on trends of Financial Advisors’ business transition & retirement options.

understanding-business-transition

Understanding Business Transition & Retirement Options

This special report provides Wirehouse and Independent Financial Advisors’ perspectives on business transition and retirement options available when they choose to exit their careers in the financial services industry.

industry-facing-challenges

An Industry Facing Both Challenges and Opportunities

Many financial advisors are eyeing retirement in the next decade, raising the question of who will take over their clients—and the trillions in assets potentially up for grabs.

For more information about Wells Fargo Advisors Financial Network:

Start typing and press Enter to search

Share this on LinkedIn Share this on Twitter