I was reflecting on a conference from last month. One of the sessions focused on succession planning. As I approach the end of the proverbial second act of my life and think about the third act, I do wonder what my exit strategy will be. Will Junior Advisor James take over the practice...after buying it from me for a fair price? Will I sell my 401k practice to a like-minded 401k advisor? Will a larger firm come by and make "an offer I cannot refuse"? Against that backdrop, I listened as the speaker talked about buying someone's book.
Buying a book of business is shorthand in my industry for buying another advisor's practice. Both sides negotiate over what they feel is a fair price but in the end, the price is usually a multiple of how much revenue the practice generates annually. Having said that (and as this topic is more germane to me now), I was struck by the speaker's comment that you are not only buying a book but also buying profit. Frankly I think the discussion goes deeper than that.
I started Green Retirement in 2006 with little more than a vision. I felt there was room in the financial services industry for a 401k practice that focused on green or sustainable investing. I believed (and still do) that many advisors who are serving the retirement plan space do not have the deep and required understanding of retirement plans. Just as financial planning is best served in the hands of a CFP, so to should the retirement plan be served by a C(k)P®, NQPA, CSRIC®, AIF®, RI(k), or CPFA®. Retirement plans are not for dilettantes.
Green Retirement was just getting its wheels under it when the 2008 - 2010 recession struck. Businesses were just trying to survive the recession. Talking about the 401k plan was the last thing on their minds. There were many sleepless nights and long days where we had to decide what bills would get paid and which would have to be delayed.
It took until 2012 for the practice to finally recover from the recession and see a true profit. While the practice advises over 100 retirement plans across the US, each plan has come to use through word-of-mouth and referral. No amount of marketing/ cold calling is going to change that. We spent countless hours manning booths at Green Festivals, Earth Day celebrations, and sustainability conferences. One might say it has taken us twenty years to become overnight successes.
The practice has achieved a modicum of success and I have the gray hairs to prove it. As I now think about what may transpire in the next ten years then, I would urge my fellow advisors to think about the fact that they are not buying a book of business or buying profit. In reality, they are purchasing a business that someone has poured blood, sweat, and tears into. They are purchasing deep client relationships and frankly friendships. This is not a transaction of dollars and cents. The value of the business runs deeper than that. If that value is not respected and clients leave, the purchaser may find themselves with something that is not profitable.
It behooves the buyer to really understand what the seller has built over decades and whether they can truly treat the clients the way they want to be treated. Culture needs to be considered. Values must be taken into account. The true worth of an advisor's book of business is much greater than the revenue it generates.