DiscoveringDiscoveringDiscoveringyour worthyour worthyour worth

A guide for advisers

considering buying or

selling a business

Contents

3 Foreword

4 Introduction

5 Feature: What’s driving the market?

6 Feature: What is due diligence?

Market Analysis7 Consolidation trends

8-9 What is coming up for sale?

10 The sole trader

11-12 Trends in valuations

13 What makes a business worth anything?

14 Case study: Comparing firms

15 Feature: Taking the long-term view

18 Case study: Robert Graham

19 Top tips: The business meeting

20 Conclusion

2

A famous story tells of a youth who is sitting fishing. A wealthy man chides him for wasting time, exhorting him to work hard, earn a living and become as rich as Croesus. “Why should I do that?” the

young man asks. The rich man answers: “So that when you retire, you can sit in the sunshine and fish”. “But I’m doing that now”, the youth replies.

Amusing as this tale may be, in reality, the rich man is right. We work hard to make a living, and then come to retirement, seeking to live out our golden years relaxing, spending more time with family and friends, volunteering or pursuing our cherished hobbies.

But ‘just retiring’ is not easy for IFAs who own their business. If there is no clear succession plan, no family member ready to take on the business in the new post-Retail Distribution Review world we are entering, simply retiring is not an option: you need to sell.

There are many things to consider, such as: how do I get the right buyer for my firm? How can I put the best exit strategy in place? Will I get enough money to live on in retirement? How do I groom my firm for sale? What are potential buyers looking for?

You may be reading this because you want to buy a great little business to help your own firm grow market share. How do you know you are getting a properly-managed, fully compliant business? How much should you be paying for a certain client book?

This guide from Retiring IFA aims to talk you through the market drivers affecting the advisory industry, give you tips on how to approach a sale or purchase and show you what to avoid. n

Foreword

steve haguesManaging Director, Executive Search, Business Marketing Consultant

Stephen Hagues, father of three and keen businessman, believes trust is the core element of any relationship – personal and professional.

He qualified in business management, then became a chartered marketer before spending a decade growing his clients’ IFA businesses, directly acquiring key personnel from competitors across the North of England.

He co-founded Progression Consulting and Foundation Resourcing in 2001, before setting up Retiring IFA in 2008. In 2011, he co-founded online valuation website Trailbuyer (trailbuyer.com).

Stephen has a deep understanding of both executive search and the UK regulated market and its people.

He says: “I believe trust is hard earned and easily lost in a service industry, so I ensure all of my firms operate with integrity to the best principles and consist of highly trained staff.”

3

Nearly 2.1m households in the UK rely on the services of a financial adviser, according to independent research from Coredata(1). Helping these people to make money and preserve their wealth for generations

to come is at the heart of what IFAs have always done. Traditionally, the primary delivery mechanism of financial services to retail customers has been an army of 30,000 IFAs, who are authorised and regulated by the Financial Services Authority (FSA).

Many of these have had successful careers, building up a loyal client base and serving their local communities. However, statistics indicate there are many people wanting to leave the industry or to take early retirement.

The combination of economic woes at home and abroad and the FSA’s Retail Distribution Review (RDR) is expected to reduce the profitability of many IFA practices. The RDR, which comes into force on 1 January 2013, is causing seismic shifts in the way people pay for financial advice, and in the way that advisers run their businesses.

For many advisers in their late 50s and early 60s, it is becoming impossible to maintain the best service to these 2.1m people, while paying to study for the FSA’s Diploma-level 4 qualification and putting new business structures in place.

RDR has changed the industry landscape. You only have to read the national and trade newspapers to see stories of IFA firms selling up as a result of the higher qualifications threshold and downward pressures on profitability resulting from the RDR.

The figures vary widely: an Ernst & Young Industry Study estimated the number of registered individuals will fall from 30,000 to nearer 20,000 by 2015(2), while bodies such as the Chartered Insurance Institute believe that only 5% to 6% of its adviser members will leave the industry as result of the RDR(3). But a contraction, however large or small, is already happening.

If you look at the table on page 8, sourced from the FSA itself, you can see that, since RDR was mooted in June 2006, numbers of individual advisers, firms and sole traders registered with the FSA have fallen significantly. The industry is changing and there is less than a year for every IFA to prepare.

Dozens of IFAs are considering retiring before the RDR kicks in on 1 January 2013 and many others are seeking to buy firms to help them get RDR-ready. But the client must always be paramount.

This guide aims to explore issues such as finding sellers whose values and visions are aligned, to give buyers peace of mind and to provide useful tips on grooming your business for value in these ever-changing times. n

Steve Hagues

Founder, Retiring IFA

Introduction

Footnotes(1) Coredata survey 2012, Consumer Fee Threshold and Appetite (2) E&Y Industry Study: RaDaR Life and Pensions Outlook 2010 (3) CII exam data; Financial Adviser, January 2012

4

Basic economics dictates there will always be owners wanting to sell their business and trade buyers interested in acquiring

them, but it seems the pace of IFAs wanting to sell and retire has picked up considerably in recent years. Why is this?

EconomicsSovereign debt crises across Europe, the UK’s bill rising to more than £1 trillion, unemployment rising and GDP stalling: the economic outlook may be more bleak now than it was in 2008, when some UK banks had to go cap-in-hand to the Government (and the taxpayer).

With more people tightening up their purse-strings, local businesses closing down and traditional lending streams running dry, it is no wonder many entrepreneurs are considering whether they have a future as a sole trader.

RegulationThe Financial Services Authority’s (FSA’s) Retail Distribution Review (RDR) has brought about a sea-change in the way investment products and advice will be distributed and paid for after 1 January 2013.

This is perhaps the biggest change affecting intermediaries since the creation of the FSA, which was set up by the then Labour government after it came into power in 1997.

The RDR requires all those involved with advice on investment products to be qualified to Diploma level 4, regardless of how many years’ experience advisers have of doing a great

job for their clients.

It also spells the end of trail commission on products and any new advice on existing products must be remunerated using an FSA-approved charging model. The FSA has only just finalised details over legacy commission (on

27th February 2012), which means all investment advisers must change their business models to make adviser charging viable and easy to communicate to clients.

IFAs must also work out how their business will be structured and whether they can still afford to give advice to less wealthy clients. IFAs must also spend time working out how to value the work they do – and how to explain fees to clients.

Independent research firm Coredata published a 77-page study, Consumer Fee Threshold and Appetite, which assessed the expectations of 1020 advisory customers following the implementation of RDR.

It found clients expect to pay an average of £38.90 an hour for an IFA and expect a full financial review to last four hours. Who can afford to give advice at this rate?

Business pressuresIFAs must deal with all these things, while serving existing clients, trying to market themselves to gain new business, meeting their regular liabilities as well as keeping on top of the ever-f lowing stream of regulation coming out of Whitehall or Europe.

No wonder we are seeing advisers exiting in the run-up to the RDR, as many predicted.

Advisers are taking stock of their current position and making critical decisions about their future place in the brave new world, whether they are buyers or sellers. n

What’s driving the market?

Key Elements of RDR

1. Independent advice is truly independent

and reflects investors’ needs.

2. People can clearly identify and understand

the service they are being offered.

3. Commission bias is removed from the

system and recommendations made by

advisers are not influenced by product

providers.

4. Investors know up-front how much advice

is going to cost and how they will pay for it.

5. All investment advisers will be qualified to

a new, higher level, level four, regarded as

equivalent to the first year of a degree.

Source: FSA

FSA figures at 31 December

2011 show how many retail

intermediaries are left:

Financial advice firms 5,142

General insurance

intermediaries 6,041

Mortgage and other home

finance intermediaries 1,512

Total 12,695

Source: FSA

5

Value driversThere are two main ways of valuing a firm: the recurring revenue multiple model and EBITDA – earnings before interest, taxes, depreciation, and amortisation. This differs from cash f low valuation in that it strips out all these charges relating to tax or working capital.Value drivers for these models are a firm’s:• Business operating structure• Degree of systemisation• The service and pricing proposition• Cost of client acquisition, maintenance and retention.

Due diligenceThis is getting beyond the numbers to see how a firm works and makes its revenue – and whether the figures it shows you really represent the underlying value of the firm.

Depending on the competitive interest, this

due diligence process may be carried out by several competing parties.

If you cannot easily get hold of this basic information, this should sound a warning bell in your ears. What is this telling you about the firm’s management? Can you get a clear picture of the true quality of the current operational framework?

Culture ClubThere’s more to buying a firm than just its figures: what about the cultural fit? You should also, therefore, consider the following:

• Business culture – How closely does it match your business culture?• Service expectations – what service expectations do the clients have? Can you deliver these expectations or provide an enhanced level of service? • Client database – Is it complete, computerised and segmented, and how easily can it be imported into your client management system?• Target clients – Do they match the profile of your desired ideal client and will they value your proposition?• Revenue risks – If the top few clients left post-merger, how would that hit your profits?• Employees – What are their capabilities and expectations. Will they fit into your business? • Systems – What systems are used to serve clients and run the business? Can they be migrated? • Scale – What other benefits does scale give your business? Are there any cross-selling or strategic opportunities?

Of course all this takes time, money and effort and you should always consider getting an expert in to help you make the right choice, plan the acquisition and manage the merger project seamlessly. n

What is due diligence?

Before any remuneration offers are made or accepted, you should make sure you have valued the client bank properly.

This is especially true for those authorised firms that want to be ready for RDR and to compete in the new advisory world order.

Due diligence is extremely important and takes a host of factors into consideration.

Top 20 things to consider

1. Revenue (fees vs commission, recurring vs initial)2. Funds under inf luence3. Funds under management (FUM)4. FUM acquisition rate each year5. Sources of revenue (eg referrals, marketing, strategic partners)6. Breakdown of operating expenses7. Profit versus turnover8. Organisational structure (roles and responsibilities)9. Client profile, such as demographics and face-to-face activity 10. Client acquisition rates11. Data integrity and compliance history12. Who owns the technology systems – the firm or a parent

company? Will the emails work after the sale?13. Leases – has the seller just signed a costly 20-year lease? 14. Distribution agreements with providers15. Staff liabilities – can you take on an expensive pension plan?16. What sort of benefits are employees enjoying?17. Are there any current regulatory issues, such as fines or

notices?18. Contract arrangements with providers – would you be tied

into firm X when you already have a deal with firm Y? This is especially important for firms considering going down the Restricted route after RDR

19. Other outstanding contractual arrangements20. Business plans and risks – have these been set out reliably?

6

The number of IFA firms is shrinking. Some players have predicted up to 20% of IFAs could leave because of the RDR. A survey in 2010 by JPMorgan Asset Management found that 14% of advisers considered leaving the industry.

In 2011, the FSA said it would be nearer 8%. However, we will have to wait to see 2013’s figures to see how great the contraction has been.

The table below on Financial Advice Firms, sourced from the FSA website, shows a marked decline in the numbers of sole traders, appointed representatives and small advisory firms over the past few years.

What is unclear from the FSA’s table is whether the decline takes into account factors such as retirement, consolidation or advisers leaving to take up new careers. But the numbers seem consistent with industry estimates.

Market AnalysisOverview

Period (as at month end)

Primary category financial advice intermediaries (a)

Non-primary category financial advice intermediaries (b)

Total Directly Authorised Firms Providing Financial Advice

Number of ARs sponsored by primary category financial advice intermediary principals (a)

Total Firms By Legal Status

Sole Trader

Dec-11 5,142 340 5482 8,590 779

Dec-08 5,492 83 5,575 9,392 816

(a) Primary category financial advisers – firms that conduct financial advice as their main regulated activity. (b) Non-primary category financial advisers – firms that conduct financial advice, but not as their main regulated activity, for instance some general insurance intermediaries. Primary Categories were adjusted in September 2010 to better reflect the risks posed by the business undertaken by firms. Source: FSA

Statistics on Financial Advice Intermediaries

While the FSA’s figures do not classify the reasons behind the contraction, a survey taken from more than 150 recent users of Retiring IFA’s valuation services provides some interesting insight. All the data was from valuations submitted between April and 31 December 2011.

The chart below, Reasons for Selling, shows the majority of advisers selling their business (96) gave ‘retirement’ as the reason for their decision to sell.

Other reasons for selling included changing their roles or responsibilities. Twenty-nine sellers (29) said they were looking for a new career – and not necessarily within the financial services industry.

Many of those surveyed said they were hoping to focus on core business or core clients, taking on a new role within the industry or moving to a new regulated role.

If these figures are indicative of a wider trend of IFAs taking early retirement, then it is clear a lot of experience is about to leave the intermediary world. But let’s find out more about these sellers...

0 10 20 30 40 50 60 70 80 90 100

Retirement

New career

Health

Focusing oncore business

New role

Moving to anotherregulated role in

industry

Reasons for selling

7

11

2 19 13

2512

4325

What’s coming up for sale?

Figures taken from more than 150 valuation reports submitted to Retiring IFA in 2011 paint an interesting picture.Perhaps it is to be expected that the majority of

sellers hail from England, followed by Wales, Scotland and Northern Ireland. One seller did not reveal his or her location but from the rest of the data, it is clear the large cities show the highest level of sellers, ranging from 14 in London to five in Cheshire. Many sellers have a lot of client money on platforms. Of those who use and named their platform, 21 use Cofunds, 10 use Nucleus, 37 use Skandia, five use Standard Life and 14 use Transact. So no matter where these sellers are based, most have a lot of investment clients who will need a new IFA. n

Geographical Breakdown

EnglandNorthern IrelandScotlandWalesOther

Country breakdown

8 9

Highest IFA Sales: Location

London & South-East 14Devon 10Yorkshire 10Lancashire/North Lancs 9Sussex 9Kent 7West Midlands 6Cheshire 5

� Scotland 11� Northern Ireland 2� Wales 12� South-East 43� South-West 25� North-West 19� North-East 13� Midlands and East Anglia 25� Other 1

Breakdown: Legend

What’s coming up for sale?

Investment 51.37%

Protection 13.03%

Pensions 30.9%

Mortgages 4.7%

Business mix (%age)

Not all the firms putting themselves up for sale have a massive client book or huge levels of turnover.

Several firms had no reported turnover in the past 12 months, suggesting they had already stopped trading as an IFA and were winding down the business.

The Retail Distribution Review, with its emphasis on investment advice, has evidently added impetus to those whose main business revenue was investment-driven. On average, a total of 51.37% of all sellers’ business was investment-based, followed by pensions, at 30.9%. Mortgages (4.7%) and insurance, (13.03%) largely protected from the RDR changes, are hardly significant revenue streams for those IFAs looking to sell.

While London and the South-East boasted the highest numbers of potential sellers, it did not claim the crown for turnover, recurring income or client base: a firm in the West Midlands cited 12-month turnover of £10m, while Glasgow boasted the most clients. n

Snapshot: Client book, income and turnover12-month turnover

Highest Lowest

£10m

£8,100

Firm with highest declared turnover: West MidlandsFirm with lowest declared turnover: Cambridgeshire

Total recurring income Highest Lowest

£1.25m

£1,000

Firm with highest total declared recurring income: DerbyshireFirm with lowest total declared recurring income: Edinburgh

Firm with the least number of active clients: Essex (5)Firm with the highest number of active clients: Glasgow (16,000)

}}}

8 9

Trends in buying rates

Most of the firms that are coming under the hammer are being put up for sale by sole traders, and there are certainly buyers out there looking for them. So far, data captured from registrations and valuation reports on Retiring IFA and Trailbuyer.

com shows the majority of firms have had only one owner. The pace of dealf low is not abating, as the projections for this year show, with estimates of 60 deals already – a figure set to rise as the Retail Distribution Review draws nearer. n

Trends in valuations

Figure 1: Going it alone... the fate of the sole trader

15

More deals coming up this quarter

60

Deals expected this year

£12m

The total FUM of the fi ffi irst

fi fi ffi irm to be sold in 2012:

a Surrey-based IFA

616161%%%

555555% % %

555555%%%

686868686868% % %

*Source: Retiring IFA/Financial Adviser 23/02/2012

Figure 2: How many deals

are on the cards in 2012?

Left: Forward projections based on valuations from Retiring IFA

and Trailbuyer.com suggest there are plenty more deals

in the pipeline this year.

10 11

Trends in buying rates

The above graph, Valuations per quarter, shows the number of advisers getting their firm valued using Retiring IFA since April 2011 (March 2012 data is not yet available).

The graphic below, sourced from Oxera’s 2010 market report, The Impact of the

Retail Distribution Review, suggests the smaller the firm in terms of revenue, the more likely it is the firm’s owner will seek to sell. The expectation, therefore, is that larger firms will consolidate the client books of advisers leaving the industry. n

Valuations per quarter

Trends in valuations

0 10 20 30 40 50 60 70

Q2 2011

Q3 2011

Q4 2011

To date since1/1/2012

Likelihood of exit, by firm revenue

Source: Oxera (2010), ‘Retail Distribution Review Proposals: Impact on Market Structure and Competition’, prepared for the FSA, March, slide 7

10 11

What’s a business worth?

Value is not an easy thing to place. What makes a business worth buying as far as one potential buyer is concerned may be of no use to another. Some firms may place a value on the number of clients, the turnover or the amount of funds under

management that generate recurring income. It’s important to dig into the figures.

0

5

10

15

20

25

30

35

40

45

0-99 100-199 200-299 300-399 400-499 500-599 600-699 700-799 800-999 1000+

Number of clients

Nu

mb

er

of

firm

s

0-99 100-199 200-299 300-399 400-499 500-599 600-699 700-799 800-999 1000+

Annual turnover Number of fi rms£0 - £19,999 5

£20,000 - £99,999 30

£100,000 - £199,999 53

£200,000 - £299,999 20

£300,000 - £399,999 16

£400,000 - £499,999 5

£500,000 - £599,999 10

£600,000 - £699,999 3

£700,000 -£799,999 4

£800,000 - £899,999 1

£900,000 - £999,999 1

£2,000,000 1

£2,500,000 1

£10,000,000 1

Figure 1: Number of firms vs number of active clients per firm

The chart on the left shows how many firms claim to have a certain number of active clients. It is clear that although 40 firms state they have up to 100 active clients, the number of firms with more active clients drops off significantly, until we get to the higher end of the scale. However, firms may simply show a buyer the number of clients that are non-active and non-active with phone. Or they might combine all the figures and present a total. If you’re after a good active client base, examine these numbers carefully. n

Figure 2: Annual turnover per firm

For many potential buyers, the annual turnover is a key determinant of the value of a company, and whether the number of clients can be leveraged to increase turnover.

A potential buyer will want to know how the turnover is generated, how much it costs to make that level of turnover and whether this will translate into solid profit

growth, year on year. Figure 2.1 breaks down into set parameters what the 150+ sellers submitting valuation reports to Retiring IFA have declared their turnover to be. Figure 2.1 provides a snapshot that shows the majority of sellers declared their turnover to be £500,000 or less; 22 put their turnover at more than £500,000 . n

12 13

0 20 40 60 80 100 120 140

Num

ber o

f firm

s

£1m-£10m£500,000-£999,999£0-£499,999

Figure 2.1: Annual Turnover: Snapshot

What’s a business worth?FUM generating

recurring income Number of fi rms

£0 - £500,000 30£1m - £1.9m 11£2m - £2.9m 8£3m - £3.9m 5£4m - £4.9m 7£5m - £5.9m 3£6m 4£7m 4£8m 1£9m 2£10m 12£11m 1£12m 9£14m 6£15m 2£16m 3£18m 5£20m 5

FUM generating recurring income Number of fi rms

£22m 3£23m 2£24m 1£30m 3£32m 1£34m 1£35m 1£37m 1£38m 1£40m 4£45m 2£48m 1£50m 5£60m 1£70m 3£80m 1£120m 1£400m 1

Figure 3: Investment income

Another key valuation tool – at least before the RDR kicks in – is the total amount of funds under management (FUM) that generate investment income. Figure 3 breaks down the individual figures from the survey; Figure 3.1 provides a snapshot that shows the majority of potential sellers have estimated their investment income from FUM to be up to £5m. One IFA firm estimates this to be c. £400m. However, after 2013, owners of firms who are looking to sell may need to sit down and rethink some valuation metrics. n

12 13

Figure 2.1: Annual Turnover: Snapshot

0 10 20 30 40 50 60 70

£0m - £5m

£6m - £10m

£11m - £20m

£21m - £30m

£31m - £40m

£40m - £50m

More than £50m

Figure 3.1: FUM generating recurring income: Snapshot

Source: Retiring IFA

Whether you want to break into a specialist area or to bolster your funds under management, it’s worthwhile to explore all the options available. Here are two different sellers based in London, both with potential to unlock value for buyers.

Valuation comparisons

RDR Ready Client Bank – For Sale

London – Price: Offers over £100,000

TURNOVER: £70,000, RECURRING: £43,000,

FUNDS UNDER MANAGEMENT: £5 million, CLIENT BANK: 40 active,

BUSINESS MIX: 30% Investments, 70% Pensions

This professional IFA practice has been operating within London for over 15 years, during which time it has developed a loyal client bank of 40 individuals from the medical sector via seminars. The average client is age 40 – 65 with portfolios of £100,000, all based across London. The fi rm’s Director is emigrating but will be available for a phased

handover of clients. Call now quoting reference 48383 to fi nd out more.

Professional IFA Practice – For Sale

West London – Price: Offers Over £455,000

TURNOVER: £400,000, TRAIL: £130,000,

FUNDS UNDER MANAGEMENT: £30 million, BUSINESS MIX: 50% Investments, 50% Pensions,

CLIENT BANK: 250 active, 2,000 total

This directly authorised practice based in West London has been estab-lished for more than 7 years, with the Director having over 30 years’

experience working within the Financial Services Sector. The client bank consists of 250 active individuals with a total client bank of over 2,000, providing you with excellent potential to generate additional business. The average client has an investment portfolio of £200,000, all based

within the West London area. The Director is wishing to exit the indus-try ahead of RDR so will be available for a phased handover for 12 - 18 months to ensure a smooth transition for clients. Call now to fi nd out

more about this professional business.

CLIENT BANK: 250 active, 2,000 total

TurnoverFor a buyer seeking to build up market share, this firm could command a good asking price, with a high number of FUM and a strong level of turnover

SpecialismThe clientele, being specialist, may attract a potential buyer who wants to break into or expand in this sector

Business mixThis London firm has a good degree of pensions business, although the ratio of turnover to funds under management suggests there is not a lot of upside potential from the investment income stream

Age profileThe age range of the clientele is positive: a potential buyer will not suddenly find all his pension business dries up within a couple of years!

Trail/FUMIt’s good to delve into the numbers. This firm’s level of trail is low, compared to the amount of funds under management. This suggests there is plenty of upside potential to be gained

Client bankThese clients may not be high net worth but an average portfolio size of £200k per client is good. For a firm with the resources to absorb 2000 clients, serving them well could lead to more business

40 individuals from the medical sector via seminars. The average client is age 40 – 65 with portfolios of £100,000, all based across London.

FUNDS UNDER MANAGEMENT: £30 million,

TURNOVER: £400,000,

is age 40 – 65 with portfolios of £100,000, all based across London. The fi rm’s Director is emigrating but will be available for a phased

14

Taking the long-term view

The view for sellersImagine there is a farmer who wants to expand his acreage. It would be odd if he sought to buy all of the available fields in the UK, let alone all the fields in his county. But he would buy all of the fields for sale if they were next to his.

Why? The value of the land next-door is greater to him than its value to any other purchaser. This is because it is serviceable from the farmer’s own land: he can get to it easily, improve turnover without increasing his fixed costs and can therefore expose more profit than any other purchaser.

Does this mean an IFA purchaser will always pay more than any other purchaser for your IFA business? Presuming affordability is not a problem and the introduction is handled correctly, the short answer is, highly likely.

Look localThere are good business arguments for this. For example, your business may be the only one of its type in the area available for sale, especially in this period of extreme market contraction brought about by the economy and the RDR.

Furthermore, your clients may be looked after in a more personal manner. For example, if they are used to home visits, a firm with appointed reps in the area can still provide that personal touch.

Of course, some clients will be dotted all over the place, even some expats, making home visits not so cost-effective! But generally, your clients will live in the area.

Local purchasers may also be less likely to be concerned with price and more concerned with what your business can do for them in the long-term. So looking around at a range of potential buyers, especially at those local to you, is a great place to start.

Paper, paper everywhereBuyers will pay a premium for good records. But experience dictates that many small firms have relied on verbal agreements, not just with clients, but with professional connections such as lawyers, tax specialists, auditors and

accountants, insurers and product providers. Terms of remuneration that can be agreed

over lunch and sealed with a handshake are no good when the potential buyer comes to look at your ‘Data Room’ and conduct due diligence. They can’t value what they can’t see.

And the FSA might have something to say about that anyway...

Start getting the relevant documents, contracts, commission agreements, leases and distribution agreements in order, in paper and online form.

If necessary, approach clients and contacts tentatively and ask them to sign something official. One consultant has suggested saying something like: ‘You know we agreed XYZ? My auditor/accountant/lawyer/f inancial director has asked for additional copies to be emailed/faxed and I wondered whether you might please sign the attached form’.

This way you can avoid looking disorganised or indicating you are thinking of selling. Which brings us onto the next point...

Softly does it It’s best not to make it known too widely that you are considering a sale, even if you have found a couple of IFAs with whom you are in talks – especially if they are local. It’s a small world – any careless talk at the tennis club or Dog and Bull could jeopardise talks.

Also, clients could hear about it and get unsettled, and professional contacts, such as lawyers and accountants, could begin to look elsewhere for stability.

It is prudent to examine the possibilities without making waves, such as looking at buyers’ profiles online in privacy, assured these buyers have signed a confidentiality agreement when they registered.

Beware of timewastersThere will always be firms that want you to do all the work getting your information memorandum put together – which could be between 20 to 100 pages – only to come up with a ridiculously low offer.

You have to consider who is serious and who

Whether you are buying or selling, you have to think long-term. What is your vision? What do you want to achieve through the sale or purchase? And what might blur the vision?

15 16

Taking the long-term view

is not – and who might just be a nosey competitor hoping to get their hands on your information memorandum.

Size up the seller: have they had success in the past? Are they reputable?

Do they tend to offer high valuations but then turn out to be what is known as a vulture capitalist – stripping the value of their acquisitions at the expense of clients and any staff they might take on?

Values and visionThis goes without saying: If you want to sell to a local business or to a national firm looking to achieve market share, consider the culture and fit of your client base to that model.

Do you trust them? Are they considered by your contacts to be fair? Do their ethics and values and vision largely match your own?

Consider whether this large potential buyer will let you work with them for a while to help with the handover, not just whether you will get the best price for your hard-earned business.

The last thing you want, as Robert Graham says in his case study on page 18, is for your clients (many of whom might be good friends) to call you a few months down the line and accuse you of ‘stitching them up’.

The view for buyersYou already have a vision: you want to grow your business ready for the new post-RDR world. So you have a vision – but are there any potential clouds on the horizon?

Ask and ask againEven before you start the due diligence process, it makes sense to ask all those niggling questions you may have.

A chief executive of a national mortgage provider once said: “We are naturally inquisitive as humans but when it comes to buying, you need to make sure that you and your team ask all the right questions.

Where does the FSA fit into this?It is a criminal offence under section 191F of the FSMA 2000 to acquire or increase control in a UK authorised firm without notifying the FSA first. Buyers and sellers must tell the FSA’s Change in Control division what is going on as soon as possible.

Usually this is done at the ‘exclusivity’ stage, when both parties are busy ironing out details. Notifications for changes in control are known as Section 178 notifications and should be submitted as soon as you have made a decision to acquire.

You need prior approval from the FSA and must notify the regulator when the change in control takes place.

Visit: www.fsa.gov.uk/Pages/doing/regulated/notify/control/index.shtml

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A seller has to tell you the answer to what you ask: so what haven’t you asked, and what might they not be telling you?

Always remember two key things: What protection is there for you, and is the firm worth what the owner says it’s worth?

Staff mattersA successful transition plan should be managed with clear lines of responsibility, based on realistic timescales, with regular reviews involving all stakeholders.

You should consider how to manage the handover and, if you are taking on the seller’s staff, how best to integrate two different banks of employees into one firm with a common goal. Have you considered pension and benefits packages, golden handcuffs and redundancies?

How will the exiting principal make the transition from the business – and when? What are the appropriate restraints to apply on him or her? Will you prevent any contact with their old clients?

How will you induct newly-acquired clients into your business and manage the new workload while serving your existing clients? What roles will the staff play in the expanded business – do you need to restructure once you have made the purchase? All these people management things must be considered.

ContactsIt’s good to ensure that any professional contacts are kept in the loop and, where none existed previously with your firm, take time to build a good relationship.

Consider how to ensure a smooth transfer of recurring revenue streams from fund managers, platforms, wraps and product providers. How will you service any centres of inf luence that are part of the new business? Finally, how are you going to manage communication between all these different parties?

Don’t rush inIf you want to grow your business it is worth taking time to plan your strategy.

It’s best not to rush to buy, to throw out high figures or to come in ridiculously low. Think through what the real long-term value of the potential acquisition will be to you.

Carry out thorough and meaningful due diligence and consider the hard and soft facts to help your decision-making process.

Let your reputation speak for youOne chief executive of a national estate agent knows all about buying. Between 2004 and 2011, his firm bought 16 operational businesses,

and acquired and merged dozens of others. He says: “If you execute a purchase

successfully the first time, you gain respect. By the time you are buying your fourth firm, your reputation for fairness and success will go before you.” n

Tips for Sellers1. Keep your plans quiet – don’t tip off your

peers or alarm your clients.2. Start streamlining your business – get your

expenses down and your profits up.3. Get your books in order – poor information

will put off a potential buyer.4. Don’t jump at the highest offer – consider

why they are dangling that carrot.5. Have a timely, organised exit plan in mind.

Tips for Buyers1. Know your strengths and weaknesses: look

for firms that will fill any needed gaps and play to your strengths.

2. Ensure you will be able to work well with the owner of any firm you acquire to ensure a smooth handover.

3. Always make sure you have answered every question about the facts, figures and cultural fit. Don’t rest until you are satisfied with the answers.

4. Trust your gut: if something smells fishy, keep fishing for answers or walk away.

5. Keep your long-term growth plans at front-of-mind.

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Case Study

robert grahamOccupation: IFA – retired 2009Location: Dunfermline, ScotlandLikes: Writing novels

Background: Robert Graham, now in his 60s, had worked in the financial services industry for nearly 40 years, setting up his Dunfermline-based practice in the 1980s after leaving Equitable Life, which was then one of the best life assurance firms in the UK. In 2009, he decided it was time to retire and focus on his ambition to be a writer. But it was not going to be easy...

Robert says: “When I got into my 60s, a few of my clients made cheeky comments about my age and succession planning.

“I wasn’t worried by the RDR; I was already working on a fee basis and had already taken lots of financial planning exams. But there were things I had always wanted to do with my life – I didn’t want to ‘die with my boots on’.

“I wasn’t actively pursuing a sale and I wondered whether the business would have any value without me – after all, the relationship element with clients is the lifeblood of an IFA firm.

“In early 2009, an Edinburgh-based introducer firm contacted me. It promised me I could get a multiple of 6x for my firm. This sounded too good to be true – and I soon discovered that it was. Some of the large nationals this firm put me in touch with were throwing out amazing multiples of up to 12x renewal – but they were not taking everything into account, nor were they interested in my clients.

“Some of my clients had been with me since I started working at Equitable Life in 1980 and I was not interested in palming them off on a firm that just wanted to get market share. My firm, Robert Graham Financial Planning, had been founded on trust and I wanted my clients – my friends – to be looked after well. The last thing I wanted was for them to be stitched up.

“I began to look around and that’s when I came across Steve Hagues and Retiring IFA. He put me in contact with more viable buyers whose values were similar to my own. He introduced me to Glasgow-based Save and Invest, which offered me a fair multiple and which appeared to have the right approach to serving my clients. I had a three-month handover period with them, and then my work was done, which gave me more freedom.

“Retiring IFA was excellent. I came out well from the deal, and everything Steve did was great.

“I would caution any prospective seller: don’t get caught out by overly high multiples. Many buyers’ definition of recurring income is restricted and may not include things such as trail commission. Do your homework and get expert help.

“I have not been idle since: my novel, Masks of Venice, has hit the Kindle and iPad market for download, at just £5. It’s written from a woman’s point of view. She is seeking the ‘magic’ she thinks her life never had.

“I’m not going to give any more away though – you’ll have to read it! But it is true to say I would not have been able to do this without the help Retiring IFA gave me when I needed to sell my firm.”

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Knowing your worth will give you self-confidenceAuthor Wayne Dyer wrote: “Self-worth comes from one thing: thinking you are worthy.”

A meeting with a potential buyer should be treated just like any new client appointment: secure in the knowledge you can do the job!

Many experienced professionals struggle to transfer their sales skills to selling their business. Don’t let this happen to you. Remember the following:

• Selling your business is complicated but so is investment risk, and you can handle that. Build on your core strengths

• You are a part of this product you’re selling! Sell yourself properly.

By realising your value and selling yourself properly, honestly and openly, you will present yourself so your business is topmost in the buyer’s mind.

Maintain the right focus“Get out of the blocks, run, stay relaxed. If you run your race, you’ll win. Channel your energy. Focus” - US Olympian Carol LeGrant Lewis.

Any potential buyer will want to see if the new business will make money in the long term. Both parties should come prepared to focus on the ‘FAB’ selling points: • Features: What key aspects of the firm

will make money?• Advantages: What opportunities and

accomplishments are evident in the business/client base that sets it above other businesses for sale?

• Benefit: What one, major thing does this firm have that would enable buyers to make the most money now?

In a regulated sales acquisition, the buyer should ask: ‘Would I buy from this person? Will this business or client bank generate more business and fit in better than the others?’

Strive to be seen as ‘one of us’Johann von Goethe said: “Behaviour is the mirror in which everyone shows their image.”This doesn’t mean you have to look

the same or wear tailored clothing, but you do need to be well-presented. If they wear suits, wear something similar. If they live on a farm and dress casually, don’t turn up in morning

suits. View their websites and profiles for hints. There are other subtleties: if one party enjoys

visiting clients in person but the other prefers telephone contact, is this a good match?

If you match their image correctly you are on your way to being accepted as one of the team. If you do not, you risk being seen as not “one of us” and no sale will be the result.

Preparation is essential“To fail to plan is to plan to fail” – old English proverb.Do your research. Find out what the purpose of the acquisition is and

have all the information ready. Prepare a list of questions and take them

with you. It’s vital to know if this is exactly the right firm to whom you should sell. The only way to do this is to have all your questions answered.

Think about identification. Who are you meeting? What is that individual’s focus? Remember that various people within an organisation have different views of what the right business or client base should look like.

Check out company brochures or websites. Research a company’s products and its markets. You should be able to talk knowledgeably about the firm, its proposition and positioning.

Closing the deal“Deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That’s

how I get my kicks.” - Donald Trump.Doing deals may seem easy to someone like Donald Trump, but the principles are the same for an international billionaire as for a rural sole trader.

Present your firm’s file in a professional, thorough way. Get together a list of business achievements, financials and anything else that makes your business look good.

When the firm talks through your business details, you can show how good you, your business and your client base really are.

At the end of the interview, ask for a second meeting. Asking for this will raise any objection to the surface in the buyer’s mind.

Remember, payment matters should only be raised when the buyers’ interest is strongest. This aspect is rarely discussed in the first meeting – so focus on getting a second! n

The Business MeetingThe initial meeting between potential buyer and seller can be nerve-wracking. Here are a few words of hard-earned wisdom to help settle your nerves and cinch that deal.

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The market is changing and, in 2013, the whole regulatory world in the UK will look very different. The RDR will be in force, the FSA will have been broken up and merged into two new bodies – the Prudential

Regulation Authority and the Financial Conduct Authority – and who knows what tricks Europe has up its sleeves for us?

Where does this leave possible sellers?Whether you think it is time to take a step back and assume a more consultative role, or whether you want to retire – like 96 of the sellers surveyed in this guide – and write that book, you have all the tools you need at your disposal – you.

Make the most of your selling points and work on any weaknesses. Get your paperwork into shape, don’t take everything that interested parties say as gospel (is their turnover really £10m a year?) and do what you think is the best for your clients.

If your house is in order, there should be nothing to stop you from fishing all day, like the youth in the parable we mentioned in the foreword.

Where does this leave potential buyers?You face a tougher regulatory world and to be competitive you will need to show competence, excellence and strong business acumen.

Not only must you consider growth by acquisition where there is a natural fit for your business, but you must ensure you are protected from hidden nasties when you buy.

The clients you acquire, the staff you take on and the new-look regulators will all want to be confident your vision for growth will be fair, compliant and that you will take them with you on your journey.

Remember, nobody can see quite over the horizon but, whether you are changing your career, retiring, selling or buying, remember you already have the skills to face the future with confidence. n

Steve HaguesFounder, Retiring IFA

ConclusionWhat’s on the horizon?

Nobody knows exactly what the future will bring. All the industry can do is prepare for it to the best of its ability and strive to make our individual visions become reality.

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