There are a number of considerations financial planners should take into account when selling a client book, which can often make a significant difference to both the seller and buyer.
1. Timing and planning. Before selling, it is important to plan ahead and understand what timeframes might be involved. Many planners do not realise how long it can take and how much work is required to get a transaction across the line.
From initial discussions, drafting memorandums of understanding and taking a book to market, through to identifying a suitable buyer and negotiating and executing the transaction, a realistic timeframe is normally six months. In some cases, however, it can take more time, so it is best to be prepared for this.
2. Good client information. One factor that can impact the valuation of a client book and its ultimate sale is quality of client data. It is important to be clear about exactly which clients you are selling and have accurate, readily accessible client records available for a potential buyer.
This is not just about identifying revenue streams and information about the client who sits behind those streams – their full contact details and client history (detailing when you last contacted them) – also needs to be recorded. In addition to having soft copies of client information, there is still a demand for hard copies of files for potential purchases, so it helps to be prepared for this as well.
The ability to provide accurate meaningful data about the clients you are looking to sell can not only improve the turnaround time for transacting a sale but also significantly improve the value of the asset.
3. Allow for transition times. When you transact the sale of a client book, quite often it will be done on a basis where you might receive a payment up to 70 per cent, followed by a period over three, six or even 12 months where some adjustments are made to the final price. This is required to accommodate the drop-off of clients who cannot be contacted by the purchaser or who may choose not to transition across. It is not uncommon to see adjustments of 10 per cent or 20 per cent in these subsequent payments.
As such, sellers need to consider what protection they have in place to cover the subsequent payment from the purchasing adviser. There are many different arrangements that can be employed here.
If you are looking to exit the industry by selling all of your clients and business, it is important to develop a contingency plan for those clients who do not wish to make the transition and instead remain with you.
For planners on the buy side, sometimes it does take some time for revenue to flow through from the acquisition of a client book. This means buyers need to carefully manage their cash flow and will potentially need access to capital to assist in the transition of the revenue streams.
4. Cultural alignment. In selling a client book, finding a buyer who is culturally aligned in terms of value and service proposition for that specific group of clients can make a big difference to the end result.
It is important to make sure your clients will be looked after in an appropriate manner, so finding a buyer that culturally aligns to your way of doing business will minimise opt-out risk for the new owner and also help maximise the sale price for you.
5. Restraint of trade. If you are looking to sell a client base, then contracts will normally include a restraint of trade clause, which will ban you from providing financial advice to the client who has been sold on to a new owner.
If you want to maintain that client for any different services in the future then this needs to be made clear in any deal.. It can get messy if your plans for continued relationships are not made clear up front, so it will help both parties to the sale of a client book to ensure this is sorted out prior to any transaction taking place.
