More than half of the UK’s financial advisors are expected to retire today over the next 10 years. This means that hundreds of billions of funds under management (FUM) will need to move to a new advisor or financial institution, with a huge number of transactions required.
These transactions will typically be either full or partial business sales, asset sales or customer book sales, and the buyers will be either business purchasers (both large and small), financial, consolidating or managerial purchasers (i.e. management acquisitions).
For owner managers seeking retirement, ways to achieve exit include doing it yourself, working with a broker, dealing directly with a consolidater or coming up with a comprehensive succession solution.
In any case, thinking about the prospect of selling or retiring can bring on a mix of feelings, ranging from fear to excitement. There are many aspects to consider.
It is therefore essential for owner managers to be clear about what is important to them, such as employees, customers, evaluation, timeframe, values, and what they are good at, as this will determine their goals and the most appropriate path to get there.
Problems can arise if you are trying to achieve this on your own. First, you may not have the relationships or resources to access appropriate financing, and the terms, if any, can be generally unenforceable because loan amounts are usually very small or prohibitive, with financing often requiring a personal guarantee.
For these reasons, it can be difficult to manage acquisitions.
Second, while the managing director may be a very good financial advisor, he may not be an expert in mergers and acquisitions. This is an information disadvantage for both identifying and negotiating with a sophisticated buyer, who are experts in mergers and acquisitions.
An alternative to doing this on your own is to work with a professional broker or corporate finance house that can help you through the process. But customer warning! Transparency is key, and you need to fully understand the rules of engagement and who the corporate advisor works for.
Do they have “buy side” and “sell side” authorization? Do they take commission from both sides? Are they working for a consolidation company and therefore are more likely to focus on that long-term relationship rather than the relationship with the vendor? If the answer is “yes,” there is likely a conflict of interest.
If you are dealing with a standardizer, it is important to realize that they have their own goals, motivations, and processes that govern how they work and with whom they interact.
A consolidation company exists, by definition, to integrate FUM and revenue into its own products and platforms, is primarily focused on vendors, not employees or the subsequent manager, and has acquisition transactions at the core of its business model. Regardless of their positioning data, there is an inherent incentive to move FUM to their own products and platforms, which is not particularly appealing to those who value independence.
With either option, the complexity of the transaction and the scale of the operation cannot be underestimated. While there are many hoops you can jump into in order to get a deal done, it is all about reviewing your options and making sure the process is managed by someone who is compatible with you in terms of outcome, and with a buyer who shares your values and can support your goals.
Angus McNee is the CEO of Rimbal and ValidPath
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