When one thinks of an adviser looking to sell or merge their practice, the stereotypical professional looking to cash out on a successful career and sail off into the sunset is likely to come to mind.
However, according to Forte Asset Solutions principal Steve Prendeville, many advisers looking to get their practices into the M&A market are not looking to retire, rather they are looking to secure succession.
“A sale doesn’t mean the end of an adviser’s career anymore. What we’re seeing is a lot of principals saying they’ve taken the business as far as they can, but they still love being an adviser and want to keep working,” he told the ifa Show podcast.
“Around 60 per cent of the transactions we’re involved in are advisers who don’t want to leave the profession — they’re looking to de-risk, secure succession and continue advising clients for another three, five or even ten years.”
Prendeville stated that this pattern is being fuelled by the fact that a lot of advisers are looking to scale and remain competitive but are unwilling to or do not have the necessary resources to put towards such an undertaking.
“For many principals, the decision to sell is about saying: I want this business to go to the next level, but I don’t want my family’s balance sheet carrying all the risk.”
He added: “Maintenance of the status quo might feel safe, but in valuation terms a business that isn’t growing in a growth market is effectively a business in decline.”
He also explained how in many arrangements, advisers are often staying on board with their practices, rather than exiting.
“We’re seeing a significant increase in advisers being promoted into minority ownership positions, becoming partners or directors, which reduces key-person risk and makes the business more attractive and more valuable,” he stated.
“Succession planning is now directly influencing valuations, because when ownership and responsibility are shared, the business is less dependent on one individual.”
Peter Fysh, principal at Financial Planning & Succession concurs with Prendeville on this issue, highlighting that poor succession planning can signal to a buyer that a practice is too reliant on its principal.
Ideally, responsibilities for running the business should be delegated to others to allow the principal to focus on giving advice. In reality, this doesn’t always happen,” Fysh said.
“The test is if the principal can take two-three weeks off or longer, and the business runs well despite their absence.”
