When you say that you’re “buying a client book” – do you fully understand what it is that you are actually paying for? Unlike a business purchase, you don’t get a trading name, premises or staff; and contrary to what a lot of advisers believe, you don’t get an automatic entitlement to a revenue stream or control over a bunch of additional FUM.
As the name suggests, the only tangible asset that you’re likely to receive in a book buy is the “book” (or “list”) containing information in the client list, along with the relevant files and supporting documentation associated with those clients. This doesn’t mean that the asset is not valuable, although realising its full potential requires you to invest time into the relationship with the clients who are the subject of that information. This is because even though you may have purchased the “list” and their former adviser has agreed not to contact them (under a restraint), ultimately clients are free to terminate their relationship with their adviser at will. To this end, you do not “own” the relationship.
What you do own is the confidential information in the client list, including detailed knowledge about financial circumstances, investment history and risk profiles. Of itself, this is an extremely valuable asset as it provides the basic tools necessary to continue servicing the clients in a seamless manner. If you supplement this information with regular personal interaction and quality service, you will increase the likelihood of forming a genuine professional relationship with that client and increase the chance that they will actually stick with you.
Here are some key tips for maximising the value of your client book-buy:
- Do your due diligence – make sure the information you’re buying is current, accurate and comprehensive (including a detailed claims history);
- Get quality transition assistance (a personal introduction for key clients, rather than just a bulk letter mail out);
- Ensure adequate restraints are in place to prevent the seller (and their associates) from contacting the clients;
- Consider the vendor’s obligations under the Privacy Act and whether client consent to the transfer is required before the transition; and
- If the clients are located in a state where stamp duty is payable, get advice on the implications for allocating the price between information in the list and goodwill.
