When it comes to acquiring an advice practice, one of the most difficult challenges can be former owners who refuse to take a step back, preventing a clean handover for the new owners.
With many advice practices looking at inorganic growth and M&A as a pathway for growth, this presents both pitfalls and opportunities for both parties.
This can include unrealised expectations, high costs, unexpected delays, misalignments in culture and problems with staff.
Expanding on the latter piece, a major difficulty can be those advisers who are keen to remain in the business, often to the detriment of the new buyers. This can be either formally where they wish to sell up but still remain working, or informally where an adviser who has retired is reluctant to step back after years of work and turns up to “check in”.
Callum Mitchener, managing director at Wealth Architects, said an owner who wants to stay involved in a business for a number of years is a red flag for him when considering an acquisition.
He said the firm is often approached by people looking to sell their business but who intend to still work for up to five years before they retire in order to retain an income stream. But this causes problems if they want to take a step back, after all once the sale has concluded as it puts pressure on the buyer to fill the gap.
“Our preference is for people to leave and we bring in our own staff otherwise they can’t focus and do their job anymore. If you’ve given them millions of dollars for their book and they’re still meant to be working nine to five, five days a week, it doesn’t work.
“In 90 per cent of cases, the person leaves, but in the two instances where they stayed, it ended in tears. I don’t know if it’s the money or the fact that they’ve sold and aren’t focused on the work anymore, they say they will be there but they aren’t – they’re on their boat or playing golf.”
While a handover period can be helpful for transition purposes, Mitchener said a “clean break” is preferable.
“A clean break has to happen. Never have the new adviser and the old adviser in the room together as the clients will automatically refer to the old one and view the new one as a road bump. Handover is fine, it’s like an art in mastering this transition now we’ve done so many, it’s about being ahead of their game. Luckily we’ve only had a few blow up for us.”
John Birt, founder of Radar Results, said it is normal to have a transition or handover period, but six months would typically be the maximum amount for a former owner to remain on the scene. Rules in the contract will usually prevent them from contacting former clients or encouraging them to go to another practice.
“The former owner should be there to hand over to the new clients and explain what is happening to them, and if that’s done properly, there shouldn’t be any client attrition,” he said.
“Sometimes the owner doesn’t want to leave or jump out too early as they don’t want to give up working and are attached to the business. That can be annoying for a new owner and bring about conflict.”
However, he said he has had instances where a buyer has bought a practice far from their own location and have required that the owner remains in place as it would be difficult for them to manage it remotely.
From the perspective of the adviser, Raelene Berryman, private business and family advisory partner at Pitcher Partners, said it is important for the individual to have a plan for what they will do once they have sold up. Having worked for so many years or run their own business, it can be daunting for them to cease work without any alternatives to fill their day.
She said: “If you are in a leadership role and you’re stepping back, then you need to have something to go to next. One of the worst things that can happen is a leader exits the business on the Friday, and then turns around and is back in the office at 9am on Monday. You have to have something to go forward to, whether that’s looking after your grandchildren or playing golf.”
