Exit Planning for IFAs – Some Thought Starters

Planning an exit from a business is not always easy, especially when you are the owner or part owner of the company. When you’ve poured your heart and soul into making a business work, relinquishing control can be like seeing one of your children leave home or losing an old friend.
Aside from the emotional attachment, though, there are serious logistical and financial concerns that have to be taken into account when one exits a business, too. And for Independent Financial Advisors (IFA), the process can be particularly tricky.

The financial advisory business is an industry where the average age is generally older – around the mid-to-late 50s, so exit is a fairly common occurrence. But for most IFAs, the tricky part comes in when consolidating the business’s financial investments, and keeping their clients happy in the long-term.

Whether you’re an IFA considering outright or partial retirement, or are simply selling your business, planning is everything and consulting a professional firm who can help facilitate the process can take a lot of the pressure off. Before you begin, though, here are a few thought starters to get those mental processes going, and help you decide on the exit strategy that’s right for you.

Things to think about
When planning your exit, there are a few possible strategies you can consider. These include training up or preparing your replacement yourself, which generally starts long before you are ready to leave. This is common practice in family businesses and retirement scenarios; grooming a trusted successor in anticipation of your exit is a great way to assure peace of mind.

Retiring outright is the preferred choice for many advisors, but selling their business book can take time. Some choose to keep working on a part-time basis – even in retirement. It’s not ideal if you just want to enjoy the fruits of your labour though. Other advisors elect to keep managing just a small portion of their clients when they retire. Ultimately, the decision is yours. And it’s important to be 100% certain that you’re comfortable with your choice.

Retirement can be a difficult thing to accept for someone who is dedicated to their work. It’s hard to let go of a business from an emotional point of view. A lot of people tend to feel like they are no longer accomplishing anything in their lives if they aren’t working, which is why partial retirement is a popular choice.

Pitfalls and valuations
The most common concern for IFA practises during an exit is client integration. And this is directly connected to a sound succession strategy or transfer of the business to a trusted partner. In fact, a solid succession plan is crucial in ensuring the survival of the business.

So, if no official succession plan is in place for the takeover of day-to-day operations, you may need some professional help. This is where a consulting firm like the Ortus Group can help you structure a plan that will ensure the business keeps going, even long after you’ve left.

Secondly, most IFAs have built up close personal relationships with their clients, and those are generally valued by both sides. So, a sound communications strategy that informs clients of the upcoming change is an essential component of any effective exit strategy. Communication should, at the very least, include an official letter from your business, communicating news of the change of ownership and an introduction to your successor.

Then, of course, the first – and probably most important – question that comes up when anyone is selling their business is, “What is it all worth? And whether you’ve elected to undertake the process on your own, with a consolidator or with an independent firm, determining the value of your business should be achieved through a thorough analysis of the bigger picture – not just book value.

Factors to be examined during your exit should always include:

  • A profile of your average client – or an objective set of profiles that can be analysed if you service a wide variety of businesses and/or individuals (include income group, demographics, credit profile etc)
  • Your monthly ongoing fee/charging structure
  • The total value of client assets the company has under management
  • An overview of your product offering
  • Legacy client bank details and risks

Consolidators vs. independent firms and the process
When deciding whether to partner with an independent firm or a consolidator, it’s important to note that while consolidators can offer a larger valuation for a business than an independent firm might (around four times the recurring fees value versus three times is probably the most common); the lower fee can often result in the seller earning more because there is typically retention of clients post-acquisition.

Nonetheless, whomever you choose should always begin with a robust and detailed discussion before any action is taken. This is the first key step in any acquisition or exit process, so that both parties can cultivate a thorough understanding of all the stakeholders who will be affected by the move, potential handover concerns, your terms of exit – partial or complete, and the regulatory environment around your decision.

Let Ortus Group ease the exit process
Nobody wants their business to fail, even after they’ve left it. So, if you’re selling or moving, an effective exit plan is essential. With Ortus, you can leave your business behind feeling confident that all stakeholders – including yourself – have peace of mind.

At the Ortus Group, our team works with IFAs to make sure that they’ve ticked all the right boxes when leaving or selling a business. Our job is to identify and evaluate all your options for you and guide you in choosing an exit strategy that works in the long-term, not just in the now.

We know that an exit is more than just a business process. It can also be a very emotional one. And remaining respectful of that fact is part of what we do every day. Get in touch today to find out how we can help you. You can also download our Guide to Selling Your Business Successfully here.