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How to better understand the psyche of the seller

There are many reasons why an advisor might sell part or all of his business right now. Maybe they’re starting their own succession planning. Or maybe they want to take advantage of record-high valuations and monetize a portion of their equity. Or maybe they’ve just decided that they want to reduce a bit of risk and turn into a bigger organization.

Whatever the reason for the transaction, the truth is that selling even a portion of your advisory business is a major decision and a life event. This is not something that should be taken too quickly or lightly. And this is one that needs to be built with a partner that you truly align with on both a personal and professional level.

In all my years of coaching mentors, and now as someone who engages in M&A, as a co-owner of an RIA, we spend very little time getting an experience of what a mentor wants. We do. and need, Thus, I speak to many advisors who are unhappy after a transaction and the reasons for this usually fit into one of three categories:

  • False expectations about the “buyer’s” role after the sale
  • Feeling that they have given up more control than they were prepared for
  • Lack of support to grow and manage business and customer relationships

I could write 10 blogs explaining why each of the above happens. Much of this is related to the excessive focus on the terms of the deal versus the money and the terms of the deal. Money, terms of the deal and cultural, organizational and personal fit. (Just because a firm is providing you with capital and access to its resources, doesn’t mean they are actually helping you implement succession and continuity planning.)

On that note, I’ve made a few observations about seller-advisors that are important to reflect on and keep in mind during the acquisition process.

They may experience an underlying fear about losing control.

It is incredibly difficult to give up control after many years of being the only one in charge. There’s no way to sugarcoat it. For consultants who have spent their entire careers in control of every aspect of their practice from business development to operations to finance to customer service, the thought of not doing any of them—ironically—can be overwhelming.

It is important to help counselors navigate this mental shift prior to their transition so that they can 1). Have reasonable expectations about what will change and how and 2). Talk about what her new role in co-production will look like and feel like.

On paper it may sound great that there is no longer any operational responsibility. However, if you have become accustomed to decision-making, and suddenly you are sharing decision-making responsibility with other (now) owners of your business, feelings of frustration and resentment can quickly emerge.

To sell consultants: Center yourself on why you’re making this change and make a habit of constantly self-reflecting and clarifying what you want and need. What are you excited about? What are you most nervous about? which skills will help you you during this transition? What will hinder you?

Firm to buy: Consultants are people; They are not transactions. Take the time to understand their level of attachment to their practice, team, and customers. Clearly map out how your firm will look and feel after a day, week and month-to-life transition. This will help to actively identify the pain points and help them feel that they have control over the outcome.

There may be a lack of knowledge about the industry and M&A as a whole

Most of the consultants got into this business to become consultants; Not building businesses or specialize in monetizing an entity. I talk to many consultants who admit to me that they don’t really know much about selling their own business. Common questions asked of me include:

  • How do I know what my business is really worth?
  • This firm is telling me that they will give me $x to join them. What does this actually mean?
  • How do I differentiate between different firms in the independent and RIA sector? How do I know which one is better for me?
  • This firm is telling me they will help me grow and buy business books and it sounds great on paper. How do I know if they are the right firm to partner with?
  • Should I also sell my business now?

Sometimes consultants feel embarrassed for not knowing the answers to these questions. (By the way, it’s not the consultants’ fault; it’s our industry’s fault.) And they may avoid asking what they see as a “stupid question,” so they end up uninformed in front of an “expert” buyer or bigot. Doesn’t look strong.

To sell consultants: Always remember that the firm is placing its best salesperson in front of you. If you feel pressured to make a decision, don’t do it now. If the firm isn’t asking you enough questions, or helping to educate and empower you, they probably aren’t the right firm. If they’re not aware of their competitors and can’t provide thoughtful answers about how they differ, or what your other options might look like, then they also probably aren’t the right fit.

Firm to buy: Lead with empathy. Consultants are business owners who have dedicated their lives to building a practice, albeit at fault for some. If you are truly a participant, focus each conversation on the outcome the advisor wants to achieve. Ask them questions like: What would be most helpful for us to discuss or review as you think through our proposal? Who else on our team would you like to talk to if you feel comfortable? What information don’t you have yet that would put this in more context?

The advisor’s arrogance can prevent them from asking the questions they really want to ask

Most successful consultants who have built businesses as solopreneurs…have big egos. And as they should.

The problem is that our ego can hinder our ability to be vulnerable. Vulnerability helps us form deeper bonds and connections; It also allows us to be honest about the things we fear, want and need. An uncontrolled ego can lead us to make decisions based purely on “proving a point” or not revealing our weaknesses.

Selling a business, even in part, is an emotional process. It represents the end of the business life cycle as you knew it and opens a new chapter both professionally and personally. We must give room for all the feelings that arise as a result, and give ourselves space to ask the difficult questions that often lurk deep:

  • Am I ready to switch relationships with someone else on my team? If not, is it because I can’t let go or the team isn’t ready?
  • How will this change affect the development of the team? Who will take care of them professionally?
  • Will this hurt the customer? How am I going to communicate this decision to clients in a way that resonates and preserves my relationship with them?
  • Do I feel truly confident in this new firm’s ability to serve its customers and team? Or am I being swayed by their “brand name” and tempting dinners and flights?

To sell consultants: Look to partner with a firm that has a proven ability to grow and (diverse) work with people. This may sound silly because we all deal with people on a daily basis. But the reality is that many firms have a lot of capital and are skilled at making and closing transactions., This does not mean that they are adept at managing people, building diversified businesses, adapting to a changing consumer, developing talent, etc. These are all things you should have if you want your business to survive and last long after retirement.

Firm to buy: If an advisor is backing out of the terms of the deal, it doesn’t necessarily mean that they are hostile or difficult to work with. They may be dealing with aspects of the transition that have not been addressed and have nothing to do with money, including time and process. Help the advisor envision the ways in which they will maintain control and ownership during and after their transition.

On a final note, for consultants looking to sell or merge: always remember that it’s your experience, and you get to define the who, what, where, when, and how.

Penny Phillips is the co-founder and president of Journey Strategic Wealth.

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