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This article is Part 2 in a series. See Advisor’s Edge Report, April 2016, for Part 1.

Last time, we looked at the main tax and legal issues advisors should consider when selling their books. This article will review questions you should be prepared to answer about your book.

Key criteria

Your book isn’t simply an accounting entry, though eventually it will become a dollar figure (which we’ll discuss next month, when we look at valuation).

It takes effort and skill to monetize your book’s inherent value, which is its ability to produce income. Seldom will a potential buyer’s capabilities match up perfectly with the practice he or she is looking at buying.

Sometimes this will simply mean either you or the buyer will have to make adjustments, whether minor or major. In other cases, there may be such a gap that the value cannot be harvested (possibly affecting both buyer and seller); worse, the acquisition could negatively impact the buyer’s existing operations.


Here are questions to determine whether there’s a true fit:

  • Product array: What proportion of the book is in direct securities, mutual funds, or ETFs? Does the seller use model portfolios, ad hoc recommendations or a custom approach? To what extent does the seller use balanced funds and funds of funds, and in what circumstances? How many product suppliers are represented in the book? What is the historical buying pattern across suppliers? For any supplier changes, why did they occur and how was the change communicated to clients?
  • Investment style: Does the seller lean toward a particular style (e.g., value, growth)? Do portfolios have a geographic or sector slant? What is the seller’s perspective on contributing to RRSPs and drawing down RRIFs? Does the investment approach differ from registered to taxable accounts? How often are portfolios rebalanced, and what are the key prompts for doing so? When was the last rebalancing for the majority of the book? To what extent is leverage used in the practice?
  • Licensing: What product licensing does the seller carry currently? Has the seller added, dropped or changed licensing recently?
  • Client service: How was the original clientele established, and what is the source of continued client growth? Is there a set communications schedule? Who is the primary office contact for clients? How, where and how often are reviews conducted? Does the seller hold client gatherings with business content? Are there non-business/social events for individuals, or for small or large groups? What is the seller’s birthday/holiday card and gifting practice?
  • Client demographics: What is the income profile of clients? How many clients are served, and what are the assets per household? How many multiple-generation families does the advisor serve? What is the age profile of clients? What is the annual mandatory RRIF draw? Is there a generational, social or ethnic connection between the seller and the clientele? What is the ratio of registered to taxable accounts? How many business owners are in the book?
  • Geography: Where are clients located? How often do clients come to the office? Does the seller meet clients in their homes or off-site? What amenities does the seller’s office have, such as parking and handicap access? Where is the seller’s office relative to the buyer’s?
  • Business model: How is income earned: transactional, AUM fees or fee-for-service? What additional services (e.g., tax preparation) does the advisor offer? If there’s been a change in the business model, how recently did that occur and what has been the client reaction?
  • Compliance record: Are all KYCs up to date? Are there any current claims, and if so, what kind have there been? Are there past claims that have resulted in formal sanctions? Are there past claims that have been settled informally, perhaps with the dealer’s intervention?
  • Key personnel: Does the buyer intend to retain some or all employees? Do the employees intend to stay on? Are there employment contracts in place, and do they formally address confidentiality and use of business assets? How long have the employees been with the seller? What roles have the employees played in client acquisition and retention?
  • Office systems: Are processes well documented? How up-to-date is the technology and equipment? How easily can it be integrated into the buyer’s operations? Will the integration force the buyer to consider an upgrade?

Other important factors can’t be measured, personality being the prime example. The buyer may be unable to sustain some parts of the practice attributable to the seller’s special skills, or may be able to develop untapped prospects. So, beyond hard financial analysis, there are considerations that defy easy quantification but demand careful examination.

Next month, we’ll look at valuation and negotiation.

Part 1: Tax and legal considerations when selling your book

Part 2 (this article): Finding the right buyer for your book

Part 3: Getting the best price for your book

Part 4: Tax issues with selling your book