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Exit strategies available for Independent Financial Advisors

15 Mar 2019

With the average age of independent financial advisors creeping up to around 55 years old, it’s not surprising that many are starting to think about their options to exit the industry. Coupled with the frustration owner managed businesses feel over growing professional indemnity costs, tougher compliance regulations and a growth in acquisitions over the past year, market conditions have seen a huge upswing in the number of firms selling. High profile examples include the Ascot Lloyd acquisition of Newell Palmer and sale of Index Wealth Management to Tilney, and with the impact of the Retail Distribution ongoing, it’s predicted that as many as one in five financial advisors could leave the industry within the next five years. However, not all IFAs have a clear exit strategy mapped out – and if they do, it might not be the one that offers the most value to their business.

The current climate

As the market has evolved the options available to advisor firms looking at exits have become more varied. We’ve seen a move away from the straight-forward purchase to other options, including growth with firms who will integrate with the existing business to support value in the longer term. Our experience tells us that while some IFAs are looking for a complete retirement or career change, many sellers wish to continue working for the acquiring firm – which means that choosing the right business for the sale is essential.

Many advisor firms don’t know where to turn when considering strategies. Planning is essential for professionals in this position, as a strong strategy and business foundation generally means a more lucrative deal. While we’re seeing many larger companies interested in buying IFAs, business owners don’t always understand what they need to do to maximise investment and ensure the business is worth as much as possible before selling.

An exit strategy to suit your business

IFAs looking to sell could refer to what we call the house analogy. When considering selling your home, you can either try to get a quick sale as is, or you can invest some time and money into doing the house up before selling it to the right buyer at the right time – therefore maximising investment. While it can be tempting to jump to a quick sale, this can often be a mistake. IFAs who take the time to build up their business and ensure it’s functioning at a high level can benefit from higher offers, as well as those from buyers who are more aligned with their values and beliefs.

The acquisition market is currently very strong and there are many things IFAs can do to make their businesses more valuable. These include securing clients for longer periods of time by taking better care of them, ensuring processes and systems are aligned and recurring income is maximised. An efficient business with strong turnover will be more attractive to acquire, as will a business that has its paperwork in order.

The majority of IFAs we speak to have a genuine desire to do right by their clients, and many have built up trusted relationships that span years – if not decades. For these businesses, the sale can be an emotional process and will involve much more than simply finding the first willing buyer. For this reason, it’s important to find synergy with the potential buyer of your business. At IDEX, we specialise in not only helping IFAs get the maximum value for their business, but also in finding a buyer that suits their culture. This is particularly important for IFAs who choose to stay on within the business after sale, as well as from a legacy perspective.

How IDEX can help IFAs plan their exit strategies

All IFAs are different and there are many different factors and actions that can be implemented over a two-year period to increase the sale value of your business dramatically. A specialist consultant can help to guide and advise you on what could be one of the biggest sales of your life.

IDEX works with a panel of buyers, all of whom have a different offering on our portfolio based on the seller circumstances. We also partner with all the relevant parties to make the transition of sale smooth and pain free.

If you’re interested in talking more about an exit strategy for your business, we’d love to help. Contact Tony Bates to start a conversation, or view more of our industry insights here.

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