The average age of the financial advisory population is rising. At the same time, all advisors face increasing compliance requirements. Together, these demographic and regulatory trends may lead more advisors to sell their books.

Transferring a practice is often the largest business deal a financial advisor will oversee. And it’s often also the advisor’s largest personal financial transaction. On the buy side, it can be a monumental financial obligation and personal commitment; on the sell side, it is the culmination of many years of invested time, effort, resources and emotion.

In the past, young advisors would be lining up with cheques in hand. The future may not be quite so predictable. When it comes to negotiations, while the top-line purchase price may be top of mind, it is the bottom-line figure that matters most: the after-tax take-home cash for the seller. Over the next year, we’ll present a series of articles aimed at assisting advisors in negotiating with those tax concerns in mind. We’ll start with a high-level look at the parties’ preparation, key evaluation criteria, valuation approaches and how negotiations build toward a contract. We’ll then turn to tax considerations, determining what is being sold, how payments are structured and what actions may be taken to mitigate tax concerns. This article will discuss preparations for selling.

Strategic planning

An advisor who has a clear vision of what her practice stands for and where it is headed—often called a career or practice plan—will be able to command a higher price than an advisor who doesn’t.

To obtain anticipated value, a selling advisor will need to emphasize what is desirable about her practice, and may need to adapt the practice to meet the market’s requirements.

The timeline for strategic planning varies, but to qualify as strategic, a plan should last a minimum of two to three years. Market cycles could affect potential buying and selling opportunities, extending the vision out to almost a decade. In practice, and to keep planning within measurable reach, a five-year outlook would be a manageable target, ideally with a rolling annual review.

Due diligence

Due diligence is the process whereby contracting parties confirm their understanding of the transaction they may be entering. Initial impressions developed during informal interactions are confirmed or adjusted through more formal discussions, detailed disclosures, and first-hand data and document reviews. Entering into a due diligence process has costs, since the process takes time and attention away from income-producing activities and management responsibilities.

The more complex the transaction, the longer the due diligence usually takes. For an advisor with little or no experience looking at other advisors’ operations, it can take time to decide what to look at, and what to look for. Having an existing practice plan (both as a buyer and as a seller) can help focus in both respects.

For the seller, opening the books can be a sensitive matter. Without reasonable access, however, a potential buyer may be unwilling to proceed. Operationally, it can be disruptive to have another person reviewing papers and accessing digital files. Beyond that, the seller wants to be certain that the acquiring party will be able to complete the financial terms of the agreement, and that the seller’s reputation will be in good hands after closing. And whether or not the deal closes, privacy, confidentiality and the integrity of the practice must be protected. (Later in this series, we will touch on non-disclosure agreements.)

The depth and time frame of due diligence may be minimal, whether by intention or simply due to lack of planning. In other cases, particularly where a mentor relationship has developed, informal talks may extend over years. As a transfer of client assets generally supports the value of a practice, the process should span at least one series of client review meetings. This could mean formal due diligence might run from a few months to a year or more.


The closing date is when the legal rights transfer between the parties. Sometimes, the entire practice is transferred on that date. In other cases, a selling advisor may decide to parcel out the practice over time, possibly in separate processes involving different buyers.


The parties may intend a clean break at closing, but there can be a continuing relationship for a number of years, formal or otherwise. For example, the buyer’s payments may be periodic following closing, whether or not the amount of payments relate to performance. Commonly, this will last for a couple or a few years, but generally for no more than five (in part for tax reasons, which we’ll discuss in a future instalment).

On the other hand, the buyer may want the seller to be present for client hand-offs. Usually, this takes one to two years. Whatever the intentions, it’s critical that the parties document in their agreement if, how and for how long they’ll continue to work together.


Here are the main risks in a buy-sell transaction:

  • Missed opportunity: The possibility that a high-potential buyer or seller does not come to a party’s attention, or that that potential is not recognized at the relevant time. A well-considered and documented strategic plan should minimize this risk.
  • Unrealized value: It’s important to understand the value of the practice from one’s own perspective and from the other side. Without this, a bad bargain may be struck (for at least one party, maybe both).
  • Imprudent venture: An ill-prepared advisor may enter into an unadvisable deal, possibly for the simple reason that a long-awaited counterparty has materialized. Having an understanding of oneself and one’s future plan can help protect against this pitfall.
  • Practice disruption: Pursuing, evaluating and concluding the sale of a practice can be time-consuming, even if the deal does not close. Both parties need to guard against false starts, balance strategic activities against continuing obligations and conduct negotiations efficiently.
  • Reputation/liability: Possibly the greatest proportion of a practice’s value lies in the advisor’s goodwill with clients, which in turn rests on reputation. If you’ve entered a deal with an advisor who later behaves badly, you may incur legal liability for his actions (though that’s unlikely). More likely is that you incur reputational liability by association.
  • Return on investment: This is a business deal. Parties must apply their analytical skills dispassionately to arrive at a fair value, structure manageable payment terms, and conscientiously monitor and fulfill obligations at and after closing, all with taxes playing a central role in the result.

Next month, we’ll discuss finding the right buyer for your book.


Part 2: Finding the right buyer for your book

Part 3: Getting the best price for your book

Part 4: Tax issues with selling your book

Doug Carroll, JD, LLM (Tax), CFP, TEP, is Practice Lead — Tax, Estate & Financial Planning at Meridian.

Originally published in Advisor's Edge Report

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