Selling to your own people
A successor may already work at your firm. Internal succession most often fails because the successor cannot raise the money.
A successor may already work at your firm. Internal succession most often fails because the successor cannot raise the money.
For some firms the best outcome is for a capable adviser who has worked there for several years to take the firm on. The clients already know them.
Test the idea early, with actual figures.
An adviser in their thirties with a mortgage and young children does not have the capital to buy a practice, and banks are cautious about lending against goodwill in a personal-relationship business.
The usual structure is vendor finance: the successor pays you out of the profits over five to ten years. In practice that means lending your own retirement to somebody else, secured on a business you no longer control and which they run as they see fit.
If the business does badly, for example after a market fall, a lost group of clients or a life event, you are an unsecured creditor of a business you used to own, at an age when you cannot rebuild it.
Ambiguity. Sometimes an understanding forms over years that the firm will pass to a younger adviser, without terms, a date or a price. The younger adviser may turn down an offer elsewhere on the strength of it. If the two sides then value the firm differently, the working relationship can break down.
If internal succession is the plan, put it in a document with a price and a date, as you would for an external sale.
Internal succession works best when somebody else carries the capital risk. The two routes can be combined.
Under a staged arrangement like Securo, a successor inside the firm can take the client relationships during the handover stage. Equity & General provides the capital at the end, so the successor does not have to fund it out of future profits. You are paid by a buyer with the capital to pay, your successor gets the clients and the career, and your pension is not lent to your successor.
If you have that person, say so in the first conversation. It changes how the arrangement is set up, in your successor’s favour.
The same multiple can produce different amounts of money depending on what it is applied to, when it is paid and what conditions attach.
Read it
Who is buying, how the price is set, what happens if you decline, what your clients experience, and the timing of a network’s internal succession route.
Read it
The three meetings of a handover year and what each one is for.
Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.