advisors only your present, your future making the most of your practice
TRANSCRIPT
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Introduction
Building a succession-friendlypractice is part of taking care
of investors and being a“client-centred” advisor
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What Do You Think Your Practice Will Be Worth?
Expected Value at RetirementPercentage of Respondents
<$100,000 4%
$100,000 to $499,000 39%
$500,000 to $999,000 22%
$1,000,000 + 31%
Don’t Know 6%
Source: Advisor Impact’s Practice Update 2004
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What is Your Practice Actually Worth?
$497,000
$186,000
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
2004 Average Sold Price
Fee-Based
Commission
Source: www.businesstransitions.com. Business Transitions Report 2005
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How to Value Your Practice
Yardstick Multiplier
Assets Under Administration (AUM) 50 – 200 bps
Historical Commission and Fee Income 1.0 – 1.5 times
Historical Annual Recurring Revenues 2.0 – 2.5 times
Revenues Actually Received 2.5 – 3.0 times
Free Cash Flow 2.0 – 4.0 times
Source: Sandra Foster, Buying and Selling a Book of Business (Headspring Publishing, 2001)
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Managing Your Business as an Asset
Look objectively at your business model
Examine the quality of your client base
Emphasize efficiency and profitability of your practice
Focus on the future
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What Decreases the Value of Your Business
Unprofitable clients
Too many liabilities or expenses
Placing too many conditions on the sale
Reluctance to sell
Over-dependency on the owner
Compliance concerns
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Ten Strategies to Maximize Value
1. Develop and follow a business plan
2. Keep meticulous financial records
3. Maintain up-to-date client files
4. Nurture a brand in the marketplace
5. Invest in systems and processes that enhance efficiency
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6.
7.
8.
9.
10.
Ten Strategies to Maximize Value
Become a “client-centred” advisor
Emphasize a team approach
Make it difficult for your clients to leave
Streamline your practice
Protect your business with a succession plan
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1. Develop and Follow a Business Plan
Where are you now?
Where do you want to go?
How are you going to get there?
A business plan helps provide focus and direction. If you don’t have one, you’re
reacting and not being proactive.- Pat Horning in The Advisor’s Guide to Business Building, Volume 2
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Elements of a Business Plan
Executive Summary
Business Overview
Industry Overview
“A man who does not plan long ahead will find trouble at his door.”
- Confucius, (551-479 BC).
1. Develop and Follow a Business Plan
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Elements of a Business Plan
Marketing Strategy
Implementation Plan
Financial Plan
“By failing to prepare, you are preparing to fail.”- Benjamin Franklin
1. Develop and Follow a Business Plan
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2. Keep Meticulous Financial Records
Income Statement
Monthly Cash Flow Statement
Annual Cash Flow Statement
Balance Sheet
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3. Maintain Up-to-Date Client Files
Keep copies of all client correspondence
Responses from client surveys can help you identify priorities and service expectations
Maintaining complete client files will help you identify clients who are not
contributing to your bottom line.
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4. Nurture a Brand in the Marketplace
Differentiate your practice
Create a position
Advertise your team
Defining what separates you from everyone else increases the value of your practice.
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5. Invest in Systems and Processes That Enhance Efficiency
Gross Profit Margin =
Gross Profit
Total Revenue
Source: Advisor Impact’s Practice Update 2004 Survey
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Profit Margin
Brokers
Planners
Profitability Benchmark
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Clients per full-time equivalent staff: 118
Clients per professional: 214
Assets per full-time equivalent staff: $25,270,500
Assets per professional: $25,683,621
Gross revenue per full-time equivalent staff: $247,767
Gross revenue per professional: $239,920
Analyze trends in these metrics and work to enhance the productivity of your business.
Figures shown are averages from the Practice Update 2004.
5. Invest in Systems and Processes That Enhance Efficiency
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6. Become a “Client-Centred” Advisor
Research Results Uncovered Two Distinct Groups
strong focus on relationships interest in investment process did
not overshadow client activities
technically oriented focused on investment strategies,
portfolio structuring, and analysis
2. Client-Centred Advisors
1. Investment-Centred Advisors
Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark
Advisors Surveyed
Investment-Centred
86.2%
Client-Centred
13.8%
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All values in US dollars. *Six month period preceding survey dates (April 9th and 10th, 2001). Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark
Results over six month period*
New clients
Average assets per new client
Existing clients providing new assets
Average new assets per existing client
Total new assets
Which type of advisor would you rather be?
5 times more new clients, 30 times more new assets!
Client-Centred
Advisors
6.8
$269,000
7.3
$64,000
$2,296,400
Investment-Centred
Advisors
1.3
$51,000
0.8
$13,000
$76,700
6. Become a “Client-Centred” Advisor
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7. Emphasize a Team Approach
Client needs Education Personality Manners Flexibility
Source: www.advisor.ca
Your team is an extension of you and your business.
Factors to Consider When Hiring New Team Members
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Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark
Differentiate yourself as a trustworthy advisor through superior service and advice.
8. Make it Difficult for Your Clients to Leave
Products and services sold become the by-product of meeting your clients’ needs
Create a “one-stop shop” by cross-selling multiple products and services
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% of Clients Providing 2 or more Referrals
17%
34%
49%
0%
10%
20%
30%
40%
50%
60%
1 Service 2 Services 3+ Services
The Benefits of Cross-Selling: Client Satisfaction and Referrals
Clients offered 3 or more services indicated a 96.6 percent satisfaction rate and generated more referrals.
Source: Price & Associates
Interviewed: 778 super affluent clients with $5M+ assets
8. Make it Difficult for Your Clients to Leave
Advisors Only Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark
Develop Your Service Offerings
Ensure your clients receive a high quality level of service and experience
each and every time.
8. Make it Difficult for Your Clients to Leave
Evaluate your service from your clients’ perspectives
Offer clients the appropriate number of choices
Go above and beyond the normal call of duty
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9. Streamline Your Practice
Remember the 80-20 rule
Educate your clients
Transition to a fee-based model
Hire an associate
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9. Streamline Your Practice
Converting to a fee-based model can demonstrate your real economic interest in your clients’ finances
Fee-based practices may be easier to sell in the future
Moving to a Fee-Based Model
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10. Protect Your Business with a Succession Plan
In extreme cases the value of your practice could disappear
Junior Advisors could walk away with your clients
“The less time you have on your succession clock, the fewer your options. The challenge for many today is to make sure that they are giving themselves enough room to maneuver.”
- Mark Tibergien, Practice Made Perfect: The Discipline of Business Management for Financial Advisors.
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What would happen if you fell seriously ill during RSP season?
“Every financial advisor has a moral obligation to make sure their clients are taken care of, especially in the event of
something bad happening to them.”
- Mark Tibergien, Practice Made Perfect:The Discipline of Business Management for Financial Advisors.
10. Protect Your Business with a Succession Plan
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Source: Advisor Impact’s Practice Update 2004
Most Advisors Plan to Sell Their Practices at Retirement
10. Protect Your Business with a Succession Plan
Sell to an existing junior advisor 11%
Have no established plans 23%
Sell or transfer to a child 9%
Other 7%
Sell to an unknown third party 27%
Sell to an identified third party 7%
Sell to an existing partner 16%
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Partnering with Other Professionals
Accountants can provide tax advice
Lawyers can draft the purchase and sale agreement
Third-party negotiators can help with mediation
Business coaches can help with human resource issues
The professionals you choose can make the difference between a transaction that goes smoothly
and one that ends in frustration.
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Finding the Right Match
Look for a buyer that will treat clients the way you do
Deals usually breakdown because of disagreements of how the business will be run
A good seller feels the presence of his or her clients saying, “Please find us someone in whom
you trust and someone we can work with.”
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Keeping Clients Happy
Present the buyer as a “successor”
Explain the need for “ongoing professional and personal contact”
Keeping clients happy is clearly a matter of reaching out and presenting a united front.
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Negotiating Payment Terms
0%
10%
20%
30%
40%
50%
60%
70%
Fee-Based Practices Commission-BasedPractices
Deals paid with earn-outs Deals paid with a promissory note
Deals that used earn-outs Deals that used promissory notes
Source: Business Transitions, 2004
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Maximizing the Value of Your Practice
Look objectively at your business model
Examine the quality of your client base
Emphasize efficiency and profitability of your practice
Focus on the future
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Start Today!
A good plan today is better than a perfect plan tomorrow.
- George S. Patton
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Resources
Sandra E. Foster, Buying and Selling a Book of Business. Toronto: Headspring Publishing, 2001.
Mark C. Tibergien and Rebecca Pomering
Practice Made Perfect: The Discipline of Business Management for Financial Advisors. Princeton: Bloomberg Press, 2005.
Mary Rowland, In Search of the Perfect Model:
The Distinctive Business Strategies of Leading Financial Planners.Princeton: Bloomberg Press, 2003.
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Additional Resources
www.advisor.ca www.advisorimpact.com www.businesstransitions.comwww.headspringconsulting.comwww.valuationresources.com
advisor.morningstar.com
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The information contained in this presentation has been provided by TD Asset Management Inc. (“TDAM”). The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does The Toronto-Dominion Bank, its affiliates, subsidiaries or related entities, nor TDAM assume responsibility or liability for any errors or omissions in the information or for any loss or damage suffered.
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