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externally, in next-generation talent who often join the
firm through an acquisition.
" The study results highlight the large number of advisers
who are approaching retirement and need to consider their
succession options, " says a representative for Dimensional
Fund Advisors. " Of the firms that have a documented
succession plan, 46% are looking to execute their plan
within the next 10 years. When looking specifically at sole
practitioners, the study indicated that 43% plan to exit in
five years or less. "
While Goodrow has seen some retirement plan advisers
making preparations to retire in the next 24 months, " with
the market generally trending up and the uncertainties of
estate planning and taxes, most planners who were considering
retirement in 2021 are waiting a couple of years to take
advantage of the activity in the market right now, " Goodrow
says. " Many clients are relying more heavily on their planners
in these times of uncertainty, so business is good. "
John Anderson, managing director and head of practice
management solutions at SEI, in Oaks, Pennsylvania, says,
as of yet, he has seen few retirement plan advisers leaving
the business. " But what I find most times when people are
coming out of a major event, be it a stock market disruption
or, now, a pandemic, is they tend to reassess their business, "
Anderson says. " In all likelihood, some advisers will
say to themselves, 'Is it time to move on and do something
different, or retire?' Then there may be those who, because
of the current inability to conduct in-person meetings or
training with sponsors and participants, will reassess their
business model. For those who had wanted to capture IRA
rollovers from retiring participants, this is now more difficult
because it's no longer in person. Those advisers who
have fully embraced technology have done much better, and
these are the ones who are likely to remain in the industry. "
Succession Planning as Part of M&A
The increase in mergers and acquisitions (M&As) is somewhat
linked to the need for succession planning, as firm
owners seek options. Goodrow has represented two advisory
organizations that have recently rolled into a bigger
group, but, she says, " Succession planning is still a relevant
topic because they are keeping a piece of the equity, and as
a group they have a responsibility for growth. Even though
there's a different dynamic, with a bigger player at the table,
that roll-up is rarely a 100% exit. "
For a retirement plan adviser looking to sell his business,
if the practice is large enough, Goodrow suggests that he
form a mini " think tank " of outsiders, including his attorney
and an investment banker, to help him value his business
and develop an exit strategy. This group can help him determine
whether he wants a cash deal or whether he would
work with an " earnout or seller-financed transition " ; the
latter, however, can be risky, she warns. The adviser could
also consider selling to a pool of employees or merging with
another practice, she says.
According to Anderson, advisers looking to exit the business
should evaluate their firm fairly. " That will give them
a better understanding of its value and what the discount
might be, " he says. " Many advisers think their practice is
worth more than it really is. "
Goodrow points out that advisory businesses are structured
as S corporations or LLCs-companies that have few
fixed assets. Thus, it is important that advisers examine their
client relationships, as those will be considered when evaluating
a transaction. An acquiring firm will also examine what
the assets under management (AUM) look like and whether
these will hold when the next generation succeeds.
Pricing the portfolio is complicated, Goodrow observes.
" People don't consider how sticky their clients are, or what
their organization's money situation is. "
" Those advisers who have fully
embraced technology have
done much better, and these
are the ones who are likely
to remain in the industry. "
M&As among retirement plan practices and registered
investment advisers (RIAs) continue to be strong, says Amy
Philbrook, head of core market sales at Fidelity Workplace
Investing in Boston. " There are a lot of motivated buyers and
sellers out there, and private equity [PE] continues to play a
big role in this space. " Also, because so much client service
is now being handled virtually, " those advisers looking to
hand their business down to a successor or someone with
a local tie find their market has widened, " Philbrook says.
Planning Ahead
Like Goodrow and Anderson, Philbrook says an adviser
seeking to exit the industry now should consider retaining a
consultant to help value his business and assess the potential
market for the sale. For those planning this move a little
further down the road, perhaps in three to five years, " they
have the time to get up to speed on the market and potential
markets and should also evaluate their firm's value drivers,
increase them and do networking, " she says.
If a deal is struck, it is critical for advisers to ensure
technology and service models have been established to
ensure a smooth transition, before informing clients. " You
need to have the infrastructure in place first, " Anderson
says. " You also need to communicate the change as a positive.
Point out the enhancements that the buyer will bring
to the table. "
Philbrook agrees. " Underscore the core values relating to
client experience that you have in common with the business,
and tell clients what they can expect in terms of continuity
and increased value-how the transition will improve
their client experience and why they are incredibly fortunate
to be handed off to a [new] partner. " -Lee Barney
planadviser.com July-August 2021 | 37
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PLANADVISER - July/August 2021

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