Putting your IFA business up for sale can be an emotional decision. But think like a buyer to get the most value out of IFA client bank sale.
The greatest mistake you can make when selling your IFA business is not to change the way you think about it. You have built that company with blood, sweat, tears and some eye-watering personal collateral. The risks, the rewards, the relationships – the business owes its DNA to you. It is your baby. And now it’s time to sell your client bank, you are keen that the buyer will see how much care and toil you’ve invested to make it successful.
1. Put the buyer’s head on your shoulders for valuation
Your client bank is possibly not worth what you think it ought to be worth. Your IFA business is only worth what someone else is willing to pay for it. A buyer will base their valuation solely on what opportunity and profitability you can demonstrate. It is possible that the things you think should add value to your IFA business do not in the eyes of the buyer.
2. To a buyer data tells better stories than people
When approaching an IFA client bank sale, having data isn’t enough. You have to understand what the data is telling you and be able to articulate that story to a buyer. Really great data should show how your client base is segmented, how those segments differ and where the value can be found. It should be detailed, honest and easy to interrogate. Have a dependable back office infrastructure that manages your client data into an organised holistic system that will answer your buyer’s questions.
3. For a buyer, profitability is key
In a buyer’s mind, your clients’ portfolio size is key – because this ultimately drives profitability. The buyer is asking how the purchase of your IFA business is going to move the dial financially for their business. They are likely to be looking for an average portfolio size north of £200,000. Mine your IFA client data (see above) to see where the money is. Then work out how that looks attractive to a buyer.
4. Benchmark salaries. What’s your team really worth?
Teams can have a big impact, both positively and negatively when putting IFA client bank on sale. If they’re self-employed, the buyer may see them as a risk – or perhaps just an expensive way of doing business. For a buyer, this presents two problems: they are going to have to take on your cost base, and they are going to have to integrate your team into theirs potentially on a different pay scale, potentially causing resentment or additional costs. Benchmark your team’s salaries to get ahead.
5. Rationalise your service and charges
You may pride yourself on going the extra mile for your clients, but a buyer may not be able to replicate this. The easiest way for a buyer to retain your existing IFA clients is for those clients to be taking a stock package of services at a set rate. Reducing service outliers makes it easier for a buyer to assimilate your business, and therefore makes it more attractive.
6. Risky business? No thanks
Nothing nixes a deal like compliance risk. Buyers are not looking for a set of risky defined benefit transfers to bring on board. They don’t want to uncover anything shady during due diligence and they aren’t interested in how you have turned risk to profit. The best IFA business for a prospective buyer is the most vanilla in terms of compliance risk. Clean up before you go to market.
7. Should you stay or should you go?
In the past, it was common for IFA client banks on the market to be ‘sell and go’ deals. Increasingly, we are seeing a ‘working on’ pattern with business owners seeing opportunities for investment and growth that wouldn’t be available in the absence of a partnership with a bigger firm. Know what you want to do in advance and make sure you are clear about how the deal will be structured in terms of future profitability and how you will be rewarded.
8. Futureproof your business
How is your IFA business run? Have you gone from a one-man band to a sizeable team without investing in the infrastructure to deal with added complexity? Have you kept abreast of technology to help with back office organization, data collection and client communications? A modern business that uses technology to the full for back office integration, cashflow modelling and full financial planning will be much more appealing to a buyer.
So many variables can affect the viability of an IFA client sale, some of them beyond your control. But these are eight things you can do to make your business more attractive to a buyer both as a prospect and throughout the acquisition journey. Think like a buyer to increase the value of your IFA client bank.
Louise Jeffreys is managing director of Gunner & Co., an IFA broker with values based on strong relationships built on trust, credibility and value.
Gunner & Co. specialise in IFA sales, IFA business sales, retiring IFAs and IFA client bank sales.