Buying a Book of Business as a Financial Advisor

The merger and acquisition market is breaking records, year after year. There is a ton of consolidation happening in the industry. 

Acquiring another advisor’s book of business is a great way to grow your business. But this isn’t a simple transaction; it’s a complex process that requires meticulous planning, deep understanding, and strategic execution.

The Valuation Puzzle: More Than Just Numbers

When you’re considering purchasing a book of business, you need to understand the value. Determining the value of a book of business is an art form that goes beyond simple revenue calculations.

Multifaceted Valuation Approaches

• Revenue Multiples: Typically 1.5x to 3x annual recurring revenue
• EBITDA Analysis: Focusing on profitability
• Fees: Could be higher or lower than what you’re used to
• Assets Under Management (AUM): Evaluating total portfolio
• Client Quality: Assessing demographic potential and relationship depth

Remember: a book of business composed of mostly one-off transactions vs. a book of business that’s composed of ongoing asset management, those are going to have very different values.

Due Diligence: Your Strategic Safeguard

It is shocking how many firms miss this step. Due diligence is the cornerstone of a successful acquisition. Advisors are responsible for knowing exactly what you’re buying and who you’re getting it from. 

Imagine buying a book of business and realizing the majority of clients were in their 70s, 80s, and beyond. What happens when they die? Their investments likely get divided up among surviving family members, and the book of business you acquired dwindles away. It’s up to you to do the homework.

Critical Areas to Examine

1. Client Data Integrity

   • Accuracy of records
   • Age
   • Marital Status
   • Performance history
   • Fee structures

2. Revenue Landscape

   • Determine revenue generators
   • Longevity of revenue streams
   • Client concentration risks
   • Potential for future growth

3. Compliance Deep Dive

   • Regulatory history
   • Past client complaints
   • Past overcharges
   • Deficiencies
   • Alignment with your firm’s standards

There is a lot to investigate. A securities attorney will help make sure you are protected during the acquisition process.

Technology and Operational Integration

You’re likely going to have different tech stacks. The advisor you’re buying a book of business from might have very outdated systems that require a lot of time and attention to pull all of the client data and restructure it for your systems. This could potentially take weeks or months.

Compliance Moving Forward

After buying the book of business, the work is far from finished. Here are a few more things you should be asking yourself:

• What notifications have you sent to clients?
• Are you able to take on all of their contracts?
• Have you thought about transitioning? 
• How are you getting clients from the old advisor’s custodian to yours? 
• Are there privacy laws in place that might prevent you from doing so?
• Have you reviewed your policies and procedures? 
• Does anything need to be changed as a result of this acquisition?

There’s a lot of paperwork that will need to be completed to stay compliant after the acquisition. A comprehensive compliance program is essential for RIAs and broker-dealers to ensure regulatory compliance and mitigate risks. Do you even have the time to deal with all of this?

It’s time to think about outsourcing compliance services. My RIA Lawyer frees you up to focus on revenue-generating activities, ensuring you continue to thrive in your business.

Suitability & Fiduciary Duty

The needs of every client may not align with your offerings. You either change your business or lose those clients at that point. You want to know this before acquisition. Understand the client’s needs, what they have been accustomed to receiving, the fees they pay, etc. If you increase fees, they are going to be looking at you to add more value to the relationship.

Everything you do during acquisition must be in the best interest of the client. 

Client Relationships

A lot of these clients you’re taking on have likely spent years building a relationship with their current advisor. So how are you going to take that place? You’re going to have to put in the work to gain trust. Find out what they liked with their old advisor, what they didn’t like, and what their expectations are with you. Sometimes this might involve keeping the old advisor around for a little bit to help with the handoff. 

You just paid a lot of money for this book of business. You want to keep it. Have a plan in place that you can present so clients can understand and get comfortable with your processes, timelines, and communication styles. 

Post Acquisition Metrics

Post-acquisition success hinges on careful monitoring:

• Client retention rates
• Assets under management (AUM)
• Revenue consistency
• Client satisfaction levels

Check in on these metrics regularly. Pay close attention to how assets are growing and how many clients are continuing to stay. If clients are leaving post-acquisition, get feedback from them. Find out why they are leaving and look for retention opportunities.

Buying a Book of Business is More Than Just Numbers

You’re acquiring relationships, trust, and the potential to make a meaningful financial impact in your clients’ lives. Make sure you do it the smart way.

Buying a book of business can be the game-changing move your practice needs. But navigating this complex process requires more than just good intentions—it demands expert guidance.

Don’t Go It Alone. Contact us today for help.