The junior adviser who wants to buy you out
When a younger adviser in your firm asks to buy it, the conversation is about funding, timing and the price, and it needs to be held carefully.
When a younger adviser in your firm asks to buy it, the conversation is about funding, timing and the price, and it needs to be held carefully.
A younger adviser who has worked with you for years asks whether they could buy the firm when you retire. Their plan may be the right answer. It also starts a negotiation with somebody you work alongside every day, and that needs care from the first conversation.
Thank them, and say you will take it seriously. Then agree to talk about it at a set time with some preparation on both sides. A reply given on the spot in the corridor can be heard as a promise. A vague reply can be heard as a no.
Before that conversation, decide what you want: the date you would like to stop, the income you need from the sale, and how involved you want to be after it.
Buying a firm needs money. A junior adviser can fund a purchase from savings, from a loan, from the firm's own future profits, or from a combination. Each of those has a consequence for you.
Usually only enough for a small share of the price.
Lenders to advice firms look at the recurring income, the file and the borrower's track record. The loan has to be repaid from the firm's profits, which reduces what the buyer can draw.
You are paid over several years out of the business you have left. If clients leave or profits fall, your payments fall with them.
Where the price is paid mostly out of future profits, you keep a large part of the risk of the business after you have stopped running it. Ask your accountant and solicitor to model what happens to your payments if the firm loses some of its larger clients in the first two years.
If a lender asks you or the buyer for a personal guarantee, take legal advice before agreeing to it. A guarantee can leave you responsible for a debt in a business you no longer control.
An internal buyer knows the firm well, including its weaknesses. You know the buyer well, including how much they can afford. Both of those make agreeing a price harder.
Use an independent valuation. Both sides then start from the same figure, and the conversation moves to how and when it is paid.
The buyer will need the right permissions, either their own or through a network, and the relevant approvals for the people running the firm. They will need to show they can carry the compliance, paraplanning and administration you carry now. Settle those points before any announcement to clients or staff.
Sometimes the figures do not work: the buyer cannot raise enough, or the risk to you is too high. Tell them as soon as you know, and tell them why. A junior adviser who has heard the reasons can plan their own career. One who is left waiting may leave, and take clients' trust with them.
Where an internal sale is not possible, ask what they want from the next few years. It may be a larger client list, a share of the firm's future, or a clear route to leading the client relationships after you have gone. Several of those can be offered without a sale to them.
While the conversation is under way, you still work together every day. Keep the negotiation to set meetings and keep it out of client work. Use advisers on both sides for the detail, so that the difficult points are discussed between the professionals.
Securo can sit alongside an internal successor. Your junior adviser can be the person your clients meet in the handover meetings, and can carry on advising them after you have gone, inside Equity & General. The firm is acquired at the exit at no less than market value, on a floor agreed in writing before you join. You receive the sale proceeds without depending on your successor's ability to borrow or to pay you over time.
Talk to your junior adviser about both routes. They may prefer to advise with the back office already provided over carrying a loan and running the business.
Old pension plans, closed funds and clients spread across a dozen providers take time to deal with, and a buyer will want to know which of them you have reviewed.
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Client data goes to a buyer in stages, and what the clients are told and asked to agree to depends on how the transfer is made.
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Most of the preparation for an exit can be done before your staff, your clients or a buyer know you are thinking about it.
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.