As financial advisors look to the future, planning a lucrative exit from their business is often a vital consideration. With the average age of UK advisors at 59 years old, it’s no surprise that 1 in 5 is gearing up for an exit within the next 5 years, often involving the sale of their business.
Successfully navigating the path to a lucrative sale and maximising the value of one’s practice demands careful planning and a strategic approach.
There is a common misconception amongst IFA business owners that a more mature business automatically creates a more valuable asset at the point of sale. However new research from Fairstone, one of the UK’s largest Chartered financial planning firms, is a wake-up call for the industry. The harsh reality is that maintaining a static client base with an average age of 60 years or over is not creating the commercial nest egg many believe it will.
Advice firms will typically be valued on their recurring annual income, with a multiplier of between 2.4 and 4. However, there are a number of indirect factors which also have a significant impact on where on the valuation scale a practice is placed.
One fundamental consideration is the demographic of your client base. A potential acquirer will be interested in the average age of your clients, the percentage of clients over 65 years old and the strength of your intergenerational wealth strategy.
The Age Factor
A recent survey of advisors conducted by Schroders revealed that 67% of them have clients with an average age of 50 – 65, and 24% have a client base where the average age surpasses 65. These figures highlight a common challenge – an aging client base. However, what’s intriguing is that only 21% of advisors surveyed have a differentiated sales and marketing strategy targeting younger investors.
Multi-Generational Approach
The key takeaway is not a mandate to exclusively target younger investors but rather to adopt a multi-generational approach. Surprisingly, despite the importance of engaging with the next generation in safeguarding portfolios, 4 out of 5 advisors lack a relationship with the beneficiaries of their current clients’ estates, posing a significant risk as wealth transfers between generations.
7 Steps for Advisors to Navigate an Aging Client Base:
- Client Base Analysis:
Conduct a comprehensive analysis of your client base, understanding their ages, life stages, and financial needs.
- Identify Aging Client Issues:
Determine the concentration of clients in specific age groups and assess the potential impact on business valuation.
- Client Retention Strategies:
Develop strategies to retain clients, especially those transitioning assets to the next generation.
- Become the Family Advisor:
Position yourself as the family advisor, identify and engage with the beneficiaries of your clients’ estates. They are the next generation of investors and your clients of tomorrow. A recent survey showed that 43% of people would use the same advisor as their parents.
- Diversify Marketing and Sales Strategies:
Embrace a multi-generational approach in marketing and sales, targeting a broader audience. Develop differentiated strategies for younger investors.
- Adjust Services and Propositions:
Review and revise service offerings to cater to clients at various life stages, ensuring adaptability to demographic changes.
- Technology Integration:
Embrace technology to appeal to a broader audience, including younger, digitally savvy investors. Explore digital platforms, collaboration tools and AI.
Embracing Change for a Successful Exit
By adopting a multi-generational approach, becoming the ‘family advisor’, engaging now with future investors and leveraging technology, you can not only navigate an aging client base but also position your business for a successful and lucrative exit.
As advisors look to the future, the ability to adapt, innovate, and communicate effectively will define the success of their exit strategy. Embracing change is not just a means to an end; it’s a strategic imperative for leaving a lasting impact on the financial landscape and securing a legacy that endures beyond the business itself.
At Estgro, we specialise in helping financial advisors maximise the value of their businesses and develop a robust intergenerational wealth strategy. Our innovative approach enables advisors to proactively identify and engage with future beneficiaries and tailor their services to clients across diverse life stages. For further details, please reach out to us, and explore more about our offering at www.estgro.com.
