SEPTEMBER 10, 2020

Selling a financial planning practice: tips for a successful transition.

By Scott Brewster

Due to tighter compliance requirements and changing personal priorities, many advisors are starting to think of selling their practice.

But selling a practice isn’t like listing a products store for sale. Your client base is your main asset, and you need to manage the ownership transition carefully to keep your client’s confidence and trust.

Getting your record-keeping systems in order is one way to increase the perceived value of your business and make the transition smoother. Discover other steps you can take to create a stress-free, successful sale below...

Your clients are your biggest assets

You’ve spent years building up your business, but maybe the time to sell your financial planning practice is drawing near. Do you just slap a For Sale sign out the front and hope for the best?

Selling a financial planning practice isn’t like selling most other businesses. The customers buying from ‘Widgets R Us’ generally don’t know – or care – who owns the store. But customers using the services of a qualified professional – like a doctor or a financial planner – do care.

Think about it: if the doctor you’ve been seeing since childhood  retired tomorrow, would you feel comfortable seeing a brand new doctor at their practice out of the blue? Or would you feel better if your existing doctor introduced you to the new one, and handed over your notes with care  before you saw them completely on their own?

So if you were in your clients’ shoes, wouldn’t you want the same consideration from your financial advisor?

Your clients have built up a rapport with you over the years. They deserve to be treated with respect, which means planning your sale carefully and transitioning them smoothly through to the new owners.


While everyone has their own motivations for wanting to sell, here are some common reasons you may decide to take the step.


As of 2016, the average age of financial planners in Australia was 57. That means many will be looking to retire in the next few years, particularly as a result of industry changes.

New education requirements

As a result of the recent Royal Commission findings and new FASEA standards, advisors are now required to meet more stringent education criteria.

In many cases, this means advisors have to become degree-qualified within the next four to five years. This has seen more experienced advisors deciding to bring forward their retirement. Others who aren’t prepared to spend the time and money on an additional qualification are also thinking about leaving the industry.

Adviser Ratings predicted in 2018 that more than 14,000 advisors would exit the financial advice industry over the next five years. That’s more than 50%.

Changes in grandfathering commissions

Additionally, changes in grandfathering commissions and trailers have drastically diminished the value of many advisor businesses. Multipliers have dropped from 3.5 to as low as 1 or 1.5. You can imagine the impact this will have on the standard financial advisory firm business model.

Other reasons

Other common causes for choosing to sell your business include:

  • Relocating
  • Personal circumstances, such as ill health
  • The need for a change

Whatever your reason for selling, with so many advisors looking to sell up in the next few years, it’s worth starting to plan your sale now. Not only will you have less competition and more time to find the right buyer, but you could also significantly increase the selling price.

Ways to sell your financial planning practice

How you sell your financial advisor practice may depend on your licensee.

For example, AMP have a Buyer of Last Resort (BOLR) agreement in place. This means you can sell your business back to AMP or to another AMP business. However, depending on the terms, you may get a lower price than you’d like.

Other firms let you sell within your licensee network and possibly even outside of the network with permission.

Other than this, your selling options basically boil down to two methods.

1.  Selling internally

Selling your business internally means selling to either a family member or an employee.

If your new owner is a current junior member of your business, you may implement a transition over an extended period of time to make sure they’re ready to take on running the business.

If they’re not already on your team, look at hiring someone now with the view to them purchasing your business when the time is right.

2. Selling externally

Selling your business externally involves selling to another business or person with no connection to you.

However, this option can be very time-consuming and complex. It may be worth using a broker to help take the hassle out of the process. However, make sure you check they’re reputable before you engage their services.

How to prepare your business for sale

What do buyers look for in a financial advisory business?

Anyone who’s looking at buying your practice will want to carry out due diligence on the business. They’ll basically want to see that your business has been running profitably, and that it has a sustainable future. As part of that, they’ll want to examine several things, such as:

  • Previous financial records to assess your business’s profitability and any money owing
  • Client records to see your mix of client base and products
  • Asset lists to determine what assets your business owns

Potential buyers are also likely to be particularly interested in aspects of your business that were affected by the Future of Financial Advice (FoFA) reforms introduced in 2013. To help them assess this, be prepared to answer questions such as:

  • How many new clients have you brought on board since July 2013?
  • Which clients are grandfathered under FoFA?

What can you do to get your business ready for sale?

Get your records in order

Buyers can see the value of your business more easily if you have good record-keeping systems in place.

Keeping accurate records is also a requirement of both your licensee (if you have one) and ASIC. This includes:

Client records

Your client records need to be in good order within a proper System of Record like Xplan. Licensees also generally require you to [digitise your records]/solutions/migrate) within a relevant system before you leave the business.

Additionally, storing your records properly within a System of Record allows you to quickly generate reports for the potential buyer. This means you can easily give them revenue numbers, client demographics, client retention rates and any other information they need to carry out due diligence.

This is where someone like Umlaut comes into the picture. We can help you get your systems in order, and then build reports and dashboards for you to help track relevant metrics.

Business processes

Many business owners keep all their processes in their heads. If you’re thinking of selling, however, you need to get everything formalised ‘on paper’ to enable a smooth transition.

Laying out clear, formalised staff procedures staff any prospective buyer more confidence in your business. It shows that your practice is running well, and that it doesn’t just rely on you to survive.

Plus, well documented procedures will also improve your business efficiency while you’re readying for sale.

If you’re trying to get your business ready to sell without tipping off your clients or team, sorting out your record-keeping can just look like ‘meeting the requirements’. It doesn’t have to be a red flag.

Work out your business value

As we mentioned earlier, selling a financial planning practice isn’t like selling a shoe shop or a factory. Your main asset isn’t your stock or equipment – it’s your client list. And that can be hard to value.

However, you can calculate the business value of your financial practice in different ways.

Multiple method

One rule-of-thumb valuation method – the multiple method – is based comparing the quality of your business with that of similar businesses.

This method calculates value as either multiples of revenue or multiples of cash flow.

  • For multiples of revenue, you apply a multiplier to your firm’s trailing 12-month revenue. In previous years, this multiplier has been between two  and three times your recurring revenue.

However, since 2018 and the Banking Royal Commission, prices being offered for advisory businesses have declined. This is partly due to stricter compliance regulations, partly because finance is growing more difficult to obtain, and partly because more businesses are going on the market.

RiskInfo states that it’s now a buyer’s market. In this market, “higher-quality advice businesses are now selling for between 1.5x and 2x recurring revenue, while conventional advice businesses are selling for between 0.5x and 1x recurring revenue multiples.”

  • The multiple method can also be used with multiples of cash flow. This allows the valuation to account for expenses rather than just revenue. It’s often calculated using EBIT (earnings before interest and tax).

Income approach

Rather than comparing your business with others, the income approach bases its valuations on actual income estimates. Again, valuations can use two approaches:

  • The discounted cash flow method uses your cash flow forecast, then applies a discount to bring the value back to the current time. While this method is accurate, it’s also complicated given the need to predict future cash flow, growth and market.
  • There’s also a less complicated income approach that assumes a normalised growth rate, called the single period capitialisation method.

Fine tune with research

Whichever method you use to value your business, it pays to fine tune your price by conducting market research. It’s worth researching what similar businesses are selling for in your area.

However, your end price can be influenced by many factors, for example:

  • business location
  • mix of clients and demographics (eg. age and net worth)
  • earnings potential
  • profitability
  • future growth potential

Every business is unique, so it can pay to seek the advice of experts like business valuators to help you work out a fair price for your business.

What to do during and after the sale

Just as you’d like to smoothly transition to seeing a new doctor, make sure you transition your clients to their new financial advisor.

It’s a good idea to create a takeover strategy as a roadmap to ensure the transition goes smoothly and nothing is forgotten. This should be a living document that you update as things change or progress.

As you create your strategy, keep mind that you’ll need to

  • Communicate clearly and often. Contact your clients to let them know about the sale and any impact it may have on them. The more you communicate with your clients, the greater their chance of staying with your firm during and after the transition.
  • Introduce your clients to the new owner. It may be helpful for both you and the new owner to meet with the clients to go over their portfolios and answer any questions. This can improve their chances of remaining with the business, and increase their confidence in the new advisor.
  • Be available after the sale. Be willing to answer any questions from the new owner or help with any issues for a period of time after the sale.
  • ***Enjoy your new life. ***Move on to the next stage of your life – whether that’s retirement or a new direction – knowing that you’ve done your best to ease the transition for your clients.

Umlaut can help prepare your business for sale

Even if you’re only thinking about selling your practice and haven’t decided whether to take the leap, a succession plan disaster-proofs your business. It provides security for the practice you’ve spent your life building up.

According to Business Health, only 30% of firms have a documented succession plans. This leaves them completely vulnerable if the unexpected happens.

Making sure your business records and data management are in order is what we do. Whether you want to prepare your financial planning practice for sale or simply want to set your business up to flourish, see how we can help.

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