Value Proposition

 
 

Your Value Proposition

Currently, out of more than 400,000 RIA reps, there are less than 25,000 independent advisors who are aged 65 years or more and own their own book, nationwide. Statistics vary, but some surveys indicate that there are as many as 50 buyers to every seller in certain market areas. Whatever the numbers are, it is clear that there are a lot more buyers than sellers. This creates an environment in which it is critical that you as a buyer demonstrate to a prospective seller that you are the person or group to answer several critical questions for any seller:

  • Will this buyer give me a reasonable price for my book of relationships?

  • Does he/she have access to capital? Does he/she have the financial wherewithal to pay me?

  • Does he/she have a robust platform and a strong ability to integrate new clients into the firm?

  • Will I be proud to go to my clients, who are in many cases good friends or family, and tell them that this is the person I have chosen to take over the stewardship of their accounts?

On a basic level, if the prospective seller cannot be convinced to be comfortable with the answers to all of these questions, you will not have a legitimate shot at working something out.

Advisory firms are generally not purchased through a bidding process. It is more of a courting process. In many cases, the money is less important than the fourth question above. The clients of any seller are often longtime friends and even family. If you cannot build trust with the seller, he/she will never Close on a transaction. In his book, The Speed of Trust, Stephen M.R. Covey talks about trust as being both veracity and competency. It takes both and you must convince the seller that you are trustworthy.

The entire buying process is devoted to answering these questions, but it starts with your Value Proposition, (VP). You must build a VP that tells the seller why he/she should sell to you, rather than the other potential suitors. The VP is a combination of your VP to clients plus elements to instill confidence in your stability and your ability to service clients in the manner that they have become accustomed.

Suppose there are two Chevrolet dealerships in your town, and each wants the same amount of money for the car you want to buy. Who do you pick? Be that person or firm for your seller.

Your Criteria for an Acquisition Target

When determining your criteria for an acquisition, there are a number of considerations, such as level of average client assets, investment style of the seller, and of course, location of the majority of the clients. In our view, the two most important issues to consider are:

  • How you will service the new clients?

  • How you will the acquisition cash flow?

Cash Flow. As a buyer, there are three questions that should top all others when considering an acquisition.

  • How much can I afford? (Or how much can I borrow?)

  • When will I have positive cash flow on the acquisition?

  • What is the likelihood that the accounts will transition?

Remember that nothing is ever perfect. You have to decide as you do in any investment you make, how much risk you can afford or are willing to take on. The more thought given to the consequences, the better you are prepared when an opportunity arises. Advisors like to work with colleagues who are prepared.

If you would like assistance in developing your unique Value Proposition, or would like to learn more about how Moisson Partners, Inc. can help, select the Contact Us link below.