Exit Strategies for Practice Owners

Exit Strategies for Practice OwnersThe current state of the economy has caused many people in America to re-think their retirement strategies and goals. These difficult times have also caused many financial professionals to re-think the timing and method of their own exit strategies.

Financial service practice owners, almost regardless of the type and size of the business model, have a wide variety of choices and solutions when it’s time to ‘call it a day.’ One such choice is to simply sell 100% of the assets of the business to a third-party, usually within the same broker-dealer, and often to a slightly larger firm. Unlike the real estate market, the market for independent financial service practices of almost any size is very strong, and the current economy seems to be making the market stronger, rather than weaker. Growth by acquisition has never been a better or more popular growth strategy.

There is more good news. Over the past 10 years, almost all sales and acquisitions in this industry below $2 million in value have relied on a shared risk-shared reward concept, with a down payment of 30% to 40% of the practice’s value, and seller financing for the balance over a 2 to 5 year period, depending on the circumstances. As a result, two important things happened. One, the client transition rates stemming from these coordinated, professional transitions have been very high (almost always upwards of 90% measured at the one year post-closing mark), and; two, the current bank credit crunch has had almost no effect on the purchase or sale of financial advisory practices.

The average number of buyers per seller is currently about 40 to 1. That means sellers have great choices as they look for a successor to ensure client service and satisfaction. It also means that practice owners remain in full control of their exit strategy and their choices. At Summit Brokerage, we have developed an in-house agreement that allows advisors to establish an immediate business succession plan while planning for a longer term solution.

For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.

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