Your clients: the key to practice transitions

Client management is the most important aspect of ownership transfer in the case of any relationship based business.

Will your daughter be happy if you give her away in an arranged marriage to someone she has never met? Yet the sale of a financial advisory business or a client book is fundamentally about the transfer of clients from one relationship to another, and even though they represent the lifeblood of the business, clients have little say in the transaction. Or do they?

Three types of clients

The extent to which clients are transferable will materially affect the value of the business being sold. John Stretch, strategist and business consultant, maintains that there are three animals in your client menagerie, each needing to be handled differently.

Firstly, there are the rats that, at the first hint of an advisor leaving the business, will desert the sinking ship.

Then there are the cats that pay allegiance to nobody and will do as they wish irrespective of the comings and goings of the advisors.

Finally, there are the dogs whose unwavering loyalty will see them follow the departing advisor to the ends of the earth.

Managing relationships

True, many of us are excellent relationship managers and our clients love us. Too much so, in many cases, because they are likely to leave the practice should their advisor do so. As a truly effective financial advisor you need to manage relationships for the benefit of the practice as well as the client and, often, this means taking a back seat.

See it as tough love, but a key aspect of a mature relationship is to reduce client dependency on the advisor. Frequently, there are others in the practice who are able to satisfy many of a client’s needs and, in the case of succession planning, it becomes even more important that the client understands that it is the business and not an individual responsible for the service experience.

Smooth transitions

But, as Stretch and others will tell you, client management is the most important aspect of ownership transfer in the case of any relationship based business. Consequently, it is the most time consuming of the many processes that must occur for the transition to take place smoothly.

Prior to the transfer of ownership there is work to be done. In the case of a one-person-practice, there are compliance implications and clients must “consent” to the transition. There may be technical issues relating to trail fee payments, for example, that must be resolved with the appropriate product providers. But more importantly, and irrespective of the size of the business, there is the need to ensure a fit between the new owner and the clients. Joint visits and personal introductions to your most important clients are essential to smooth the transition and for the departing advisor to transfer credibility to the new incumbent. How long the hand over process should take will depend on circumstances and the parties involved but, generally speaking, more than six months would be preferable.

Settling in

The period immediately after the transfer of ownership is equally important. If clients can see that the new owner has the full support of the previous advisor it provides reassurance and facilitates relationship building during this settling in period. Again the optimum time that the departing advisor should remain involved is situation dependent, but many feel that six months is ideal.