How to Buy a Financial Advisor Book of Business

Buying a book of business as a financial advisor involves acquiring an existing client base, often from a retiring or transitioning advisor. This process can provide an opportunity to expand your practice, generate immediate revenue and build long-term relationships with established clients. Acquiring a book requires assessing both the advantages and potential risks, as well factors like the valuation of the book, the structure of the deal and your plan for the transition.

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Start With the Asking Right Questions

If you’re considering an acquisition, you will need to go through multiple steps before making an offer. Begin by asking questions to determine if an acquisition aligns with your business goals. Here are four factors to consider:

• What purpose would buying a book of business serve in furthering the growth of your business?
• How does it align with your short- and long-term goals?
• How much are you willing to pay to acquire another advisor’s book of business and what is the expected rate of return on that investment?
• Will you need financing to complete the acquisition and if so, where do you anticipate it coming from?

It’s also important to think about how buying a book of business might affect your advisory model. For example, will you make any changes to your revenue structure? Do you want to expand the scope of services that you offer? And, if so, what might that mean for the clients you’re acquiring and the ones that you already have?

You may find it helpful to talk to other advisors who have been through the process of buying a book of business. They might be willing to share insights on which parts of the process proved most challenging and how valuable they found it to be in growing their businesses.  

How to Find a Book of Business For Sale

Finding a financial advisor book of business for sale that meets your requirements might not be the easiest thing to do. A Broadridge survey of over 400 financial advisors found that 58% said they are looking to add new clients, and buying another advisor’s business is one way to do that.

There are several ways to go about finding opportunities to buy a book of business from another advisor. If you don’t already have an acquisition prospect in your sights, here are four common options you might explore for finding one:

• Feel out your network: Networking as a financial advisor is one of the best ways to spend your time, as it could help you to make valuable connections. If you feel comfortable doing so, you may put out tentative feelers to people in your network letting them know that you’re interested in buying a book of business. For example, someone in your immediate circle may know of an advisor who’s looking to retire, which could open the door for an acquisition discussion.
• Try a cold-marketing approach: Cold-calling or emailing is another point of entry you might consider if you know of an advisor who’s ready to sell but hasn’t found the right buyer. The key to making this strategy work is building trust, as an advisor may not be willing to sell to you based on your reputation or cold pitch alone. Instead, they need to feel reassured that you’ll show their clients the same level of care that they have in the past.
• Check out a listing service: Listing services can provide ready access to books of business that are already for sale. You might choose this path if you’d like to be able to browse different listings and compare them at your own pace. One drawback, however, is that you might face stiff competition from other buyers so you may need to make multiple offers before one is accepted.
• Ask your broker-dealer: Your broker-dealer may maintain a database of listings for books of business that are for sale. There may not be as many to choose from compared to a listing service, but the competition may not be as steep either.

No matter how you decide to look for a book of business it’s recommended that you don’t rely on a single method to find what you’re wanting. It will be a lot easier to find the right book of business if you expand your search as wide as you can before settling on the ones you want to explore further.

If you can’t find the right full book of business to buy, you may want to consider your options for adding new clients in a different way. SmartAsse Advisor Marketing Platform (AMP) gives fiduciary advisors the tools to automate their lead generation and marketing efforts and target up to 15 new clients per year. This subscription-based service can not only deliver up to 540 validated leads per year, it also gives advisors the ability to build and manage personalized nurture campaigns using automated emails and text messages. Learn about SmartAsset AMP today.

Do Your Research

Due diligence is essential when buying a book of business as a financial advisor. Once you’ve found potential acquisition candidates, the next step is to thoroughly examine every aspect of their operations. Some key things to consider here include:

• Business cash flow and gross revenue
• The overall business model and how similar (or dissimilar) it is to yours
• Any potential liabilities that might exist
• The seller’s motivation for unloading their book of business

Choosing a business that’s closely aligned with how you operate your firm could allow a smooth transition, both for the new clients you’re acquiring and your team. If you’re buying a book of business a financial advisor is selling for the goal of growing your client base, then you need to be fairly certain you’ll be able to retain those clients once the acquisition is complete.

Measuring the Value of a Financial Advisor’s Book of Business

Valuing a book of business accurately is key to negotiating a fair deal. Several valuation models exist, including the multiple of revenue model, which applies a revenue multiplier; the discounted cash flow method, which projects future cash flows and discounts them to present value; and the market value approach, which compares sales of similar books. Often, multiple valuation models are used for a more comprehensive assessment.

Various factors influence valuation, including assets under management (AUM), revenue consistency, profitability, client retention and growth potential. Other considerations include the scope of services, branding and market trends.

It’s important to ensure you’re paying a fair price when acquiring a book of business. Working with a professional appraiser can provide a precise valuation, giving you a clearer understanding of a book’s worth. Consider assembling an advisory team that includes accountants, attorneys and acquisition consultants to guide you through the process.

The valuation process involves due diligence, client and revenue analysis, scalability assessment and comparison with similar sales. Buyers must weigh potential returns against risks such as client retention challenges and revenue fluctuations before making a purchase.

Develop a Transition Plan

Once you’ve agreed to buy a book of business, the real work begins as you hammer out the details of the transition. That includes working with the seller to establish a timeline for completing certain tasks, such as:

• Making client introductions
• Completing all necessary paperwork and finalizing other legalities to make the transition
• Transferring responsibility for the management of client accounts

It’s important to have a clear written agreement detailing exactly what the process will look like and how involved the seller will be throughout the transition process. The more participation and input you have from the seller, the easier it’s likely to be.

You may also need to consider any changes that will need to be made on your side with regard to things like onboarding processes or branding on social media. It may be to your advantage to have an attorney review the transition plan if you haven’t done so already, as they might be able to point out any weak spots or concerns that have been overlooked.

Finding Client Synergy When Buying a Book of Business

Every advisor knows to look for the big things when buying a book of business, such as how much revenue they’ll be bringing in compared to what they are paying. However, many overlook one of the most important aspects of deciding to do this, which is client synergy. If you’re buying a book filled with clients that don’t fit in with your current roster of clients then it might not be the right fit for you.

An example of what we’re talking about here can help you understand the importance of this concept. If you focus on ESG investing but the book you’re buying doesn’t then it could damage the trust of your current clients if you take on the list of new ones. This could end up hurting your business by costing you clients and costing you the growth opportunity that you’re looking for.

You want to make sure that you lose as few clients as possible from both your current client roster as well as your future ones. So if the clients that you’re bringing on aren’t a good fit for what you offer, or you can’t deliver what they expect, then you might want to pass and look for a book of business that is a better fit for you.

Bottom Line

Buying a book of business from another advisor could help you to leapfrog up the ladder of growth, but it’s not a decision you should rush into because it could be an expensive mistake if not done the right way. Taking time to thoroughly research the specifics of how it works and how to find books of business for sale can help you determine whether it makes sense for your firm.

Tips for Growing Your Advisory Business

• SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service that financial advisors can use for client lead generation and automated marketing. Sign up for a free demo today.
• Buying a book of business can help you to scale but at some point, you might decide that you’re the one who’s ready to sell. If you’d like to pass the business on to someone else in your firm, developing a succession plan is an important step. While two-thirds of advisors have created a succession plan, that may be something you need to turn your attention to if you haven’t done so yet.

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