Success in succession planning

by | Apr 16, 2020

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The market

Understanding the diversity of the market can help you to understand the type of buyer into which you would consider integrating your firm.

There are many ways to segment the market for financial planning firms. As brokers, our approach at Gunner and Co. is to differentiate buyers by their motivations for growth.

We see a lot of talk in the market around consolidation. Often the focus is on ‘vertically integrated’ firms buying businesses with the intention of moving existing income streams that currently sit with third parties, within the buyers business, thus generating a greater return on investment.

What you may not realise is that by taking multiple bites of the total expense ratio (TER) cherry, vertically integrated firms are able to create a lower overall cost for the client. Quilter Private Client Advisers, for example, can offer clients a full financial planning service for a TER of 1.46% (depending on the detail of the client and precise agreed service level). This often undercuts smaller, ownermanaged practices which struggle to benefit from such economies of scale and bargaining power.

Approaching the market with similar motivations are multi-service, private client-led businesses, such as large accountancy firms.

By acquiring quality financial planning businesses, firms such as Mazars can grow both their financial planning arm and their broader client services functions such as tax planning, personal and corporate accountancy, to name but a few.

This provides their clients with the opportunity of having all their financial needs looked after in one place, simplifying their affairs and potentially moving their ‘trusted adviser’ relationship from a single financial planner, to a full-service firm with a depth of expertise.

Whilst many acquirers in the market have multiple client offerings, leading to an enhanced return on investment, there is also an abundance of smaller, typically regionally or locally focussed firms looking to enhance organic growth through small, well-chosen acquisitions.

Often a smaller buyer will give you the reassurance of knowing exactly who will be looking after your clients as well as a similar local feel to your business. However, their ability to resource an acquisition, be it financial or logistical, should be thoroughly understood.

Some networks offer members an exit route through a ‘practice buy-out’. This is essentially where another member firm buys your firm, funded by the network. In practice this can offer your clients with a certain level of consistency of proposition, however these transactions are not always in line with external business valuations.

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