Financial Advisory Practice For Sale

How Technology and Systems Affect the Value of a Financial Practice

Many sellers of financial services practices believe that price is solely a function of traditional metrics like assets under management and trailing 12 revenue. That’s a mistake. Valuing a financial services practices isn’t as simple as finding a multiple of revenue. While those metrics are important, today’s buyers look past the numbers.

One important factor that buyers will consider is what kind of systems you have in place. Specifically, they’ll want to know whether you and your staff are leveraging the latest technology to operate more efficiently. Everything else being equal, a practice that is more technologically advanced could bring significantly more value than one that is “behind the times”.

Why do buyers care about technology and systems?

They want to be sure that the practice can keep operating without you around. Sellers often make the mistake of thinking they should be compensated for what they have built. However, buyers value a practice based on what it can be in the future.

If your customer relationship management system is your rolodex or your contact list on your cell phone, that doesn’t bode well for the viability of the practice once you’re out of the picture. Similarly, if all of your client notes and investment documents are stashed away in manila folders and storage boxes, the transition is going to be more difficult for the buying advisor.

Buyers want to see a well-oiled machine that can keep running even while you’re transitioning out. That means having a CRM system that is fully up-to-date and is loaded with complete notes on every client. That also means having investment management software that is easy-to-use and understand, with full transparency on how a client is invested and why they are invested that way.

Think about what life may be like for the buying agent after you leave. Will he or she have to dig through stacks of paper to piece together a client’s history? Will he or she have to navigate an antiquated CRM or investment management system? If so, they’re not likely to pay a premium for your practice.

Buyers want to limit further investments after the sale. Buying a financial services practice is much like buying a home. You don’t want to have to make repairs as soon as you move in. However, if your practice is behind on technology and systems, that may be just what your buyer has to do.

If you were considering purchasing a home that needed repairs, you’d likely either offer a lesser amount or ask the current owner to make the repairs prior to the sale. That’s what could happen in the sale of your financial services practice. Your buyer likely has an “all-in” cost that includes purchase price and subsequent investments. You can maximize the purchase price by limiting the number of technological upgrades he or she will have to make after the transaction is complete.

Remember, buyers aren’t paying for what you’ve done; they’re paying for what the practice can be. You can help them feel confident about their purchase by getting your technology and systems up-to-speed before you list the practice.


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