10/22/2014. Over the next decade, an estimated 12,000 to 16,000 of the nation s 315,000 advisors are projected to retire each year.

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1 1. Financial Advisor and Acquisition Statistics 2. The Essentials of a Practice Acquisition 3. Seller s Guidelines and Checklist 4. Practice Valuations and Acquisition Structures 5. Succession and Continuity Planning Over the next decade, an estimated 12,000 to 16,000 of the nation s 315,000 advisors are projected to retire each year. The average age of advisors in the country is 50.9 years and 43% are over the age of 55. Nearly one-third fall into the 55 to 64 age range and 22% are over 60. Advisors over 60 years of age control $2.3 trillion in assets. Only 5% of advisors are under the age of 30. Only 29% of advisors have a continuity or succession plan in place Accenture Wealth and Asset Management Services Report information as published in FA Magazine online article dated May 22,2013 1

2 6 Major Steps for the Buyer 1. Develop specific acquisition objectives, strategies and expectations. 2. Make sure you have a funding strategy in place. 3. Position yourself in an environment that exposes you to opportunities that will match your strategy. 6 Major Steps for the Buyer (continued) 4. Perform a thorough due diligence on the potential acquisition. 5. Negotiate the deal directly with the seller use outside professionals where necessary. 6. Have a well thought out, post transition plan in place. Develop a Due Diligence Plan 1. Realize the buyer will want to perform a in-depth due diligence of your practice. 2. Review a list of items the buyer will typically want to examine. 3. Identify on the list where the documents are located and estimate the time you will need to create information or records that do not currently exist. 4. The due diligence process is a two way street. 2

3 Other due diligence items to keep in mind: 1. Be forthcoming of any compliance issue or pending client disputes in your firm. 2. Make sure the buyer has all the required registrations to work with your client base. 3. If the buyer has a different broker-dealer than yours, take care to know early on whether this poses a problem. 4. How will the buyer pay for the acquisition? Know these options and outcomes well in advance. 5. Recognize the core value of your firm is, first and foremost, the client relationships. 6. Know the total business value of your firm. Practice Valuations 1. The value of a financial practice is typically represented in the form of a gross revenue multiple, based off of market comps. 2. The current non-recurring revenue multiple is: 1.08 ( ) 3. The current recurring revenue multiple is: 2.35 ( ) 3

4 Practice Valuations Some factors impacting the estimated business valuation: Average age of your clients Average tenure of your clients Current client positions types of products, liquidity of assets, surrender charges, etc. Total securities product and insurance AUM Average client AUM Are any clients on mandatory distributions? Are they reinvesting all or part of the distributions? Acquisition Structures Cash-Out Earn-Out Gradual Sale Putting a plan in place allows: Growth of equity value Continuity of service for your clients Efficiency when transferring your business Flexibility of retirement time frame Practical, rather than emotional decision making Security that you have helped prevent the risk of a fire sale Potentially can provide career-path opportunities to existing associates 4

5 Succession Planning Tips 1. Create and execute a continuity plan now to protect your family and clients in the event of death. 2. Establish a transition time period: If 3 years or less, focus on tactical measures and ways to reduce the risk to the value of your firm, e.g. retain key employees to help retain clients. If 3-10 years, you ll have a better chance of growing and protecting your equity. Succession Planning Tips (continued) 3. Ask your broker-dealer to help identify a buyer and/or successor. 4. Internal successions tend to have higher client retention rates. Ask yourself the following questions: Do you have a succession and continuity plan in place? Do you have access to resources to help you protect the equity in your practice now and in the future? Do you have access to acquisition financing? Who will help you locate a potential buyer or seller? Need Help? Contact Prestige Acquisitions at: or 5