Most of you probably think that this article is about investments, and it is. But not investments that you’d recommend for your retirement account or a client — it is about your investment in the financial planning business.

CPA firms are all over the map when it comes to offering financial planning services. Some want nothing to do with it, some are still thinking about launching an initiative, some are happy to keep it as a small division merely adding to cash flow, and others are thriving and growing that practice as fast as or faster than the core accounting business. Whichever route you choose, sticking your head in the sand and pretending that this type of service never existed could be a bad decision.

Let’s begin with those who want nothing to do with providing personal financial planning services. Even in this category, I’ve seen firms behave quite differently. Many of them hold their clients out as bait to entice accounting referrals from financial professionals. If you are a super networker and feel that this is in your clients’ best interests to trade them for referrals and introductions, then knock yourself out. But my wish for the profession is that firms who do not want to perform advisory services perform enough due diligence on prospective service firms for their clients to make an intelligent introduction. Who sent you your most recent great accounting referral is important, but not important enough to lay your clients’ financial future in their hands. As you may know from reading these columns, investing and performance are important, but not to the detriment of all of the other significant moving parts that encompass a proactive and holistic wealth management relationship. What good is great performance if your accounts are mistitled, your estate is a mess, and your clients have no plan for family governance or business succession beyond their lifetime?


Time to sell?

For firms that have launched a financial planning division, I’d like to start with those who have decided to sell or should decide to sell. There are a bunch of telling signs that may indicate your readiness to sell:

  • Your heart isn’t in it.
  • You delay financial planning service needs until after tax season.
  • You have no succession plan for this division.
  • You have limited or no staff for this division.
  • Your wealth management division hasn’t grown in years.
  • You are not satisfied with your PFP partner.
  • You resent the time devoted for compliance and additional continuing education.
  • You know down deep that you are underserving your clients.
  • You are a part of a larger firm where not every partner supports the planning division.

Selling the PFP division does not mean that that you have failed. Many firms have thrived in the past decade by intensely focusing on what they do best. And if what you do best is to service a niche or a specialty service area in your marketplace, you may be right to monetize the PFP division and use those resources to grow your specialty.

Selling the financial services division should be given the same level of due diligence and care as you did when you got started. Price and terms are important, but perhaps more important is the service model of your buyer and how they treat their (and possibly your) clients.

The good news is that you are still those clients’ CPA, and likely still working on their business accounting and personal tax needs. You’ll be able to monitor firsthand how any transition is going and be able to spot deficiencies or service flaws of the acquirer. Because buyouts are often a series of delayed payments, retaining the PFP revenue for the buyer is a significant part of your purchase price. Cash deals do exist, but frequently for a lower ultimate purchase price. There’s another piece of good news, and that is that in today’s financial planning world there are more buyers than sellers, so the valuation and terms are often in the seller’s favor.

Start the process of finding a buyer very slowly and quietly. I would not sign up for any selling assistance, as there are few credible options and there are generally enough active buyers that all you’ll need to do is get the word out among a few colleagues or allied professionals. If you don’t like the firm that you’re currently working with, consider changing firms before you get into the selling process. If you don’t change first, then your clients may be stuck with that firm beyond you.

In a perfect world, you would work on the business a bit before selling it. Just like selling a house, it is common to do a little fixing up before putting a sign in the ground. Buyers will value certain intangible matters that you may not have considered, including factors such as how often you meet with your clients; the average age of your clients; the average tenure of your services to clients; the range of services delivered to clients; the depth of staff; your regulatory structure; your financial services partner; and the consistency of your revenue stream. While there are many more considerations on the minds of buyers, keep in mind that any weakness or perceived weakness can be strengthened and turned into a positive. You just may need to change the landscape a bit and get a fresh set of eyes to assist you.


Time to buy?

Now let’s shift over slightly to those of you who have an appetite to acquire financial services practices. As stated previously, there are currently more buyers than sellers — so you are entering a very crowded space as a buyer. The best way to find sellers is through networking and being present in your local financial planning circles. You may need to hire a marketing firm to assist, be present at as many trade and professional meetings as possible, and generally let the world know that your firm is ready to grow through acquisition. A robust social media presence within the profession may also help.

Keys to making an acquisition work start with culture. You want to acquire a firm with clients that are similar to what your current sweet spot resembles. Acquiring a bunch of smaller clients when your firm is built to service larger clients is not a good idea. The reverse is also true. Perhaps the ideal purchase would be a firm with clients like yours who are underserved. Simply because of the high valuations today, your ideal purchase will include a firm whose offering is not as robust or broad as yours. Being able to expand the scope of services may increase revenues but it will also help endear you to these new faces somewhat quicker and uncover new assets or opportunities.

The most common form of underservice includes firms that only do investments or insurance to the detriment of their clients’ overall financial planning needs. Buying a firm where clients have only received cursory planning services may also uncover additional services being performed by another firm that you may be able to take over, including tax and accounting.

Deals today are fairly easy to finance, and the terms definitely have an impact on the ultimate price. The highest prices are typically fetched for owners who are willing to be a part of the financing equation. In fact, there are many deals today where buyers are committing very little upfront, and the seller and a traditional lender are providing most of the capital. If a buyer is willing to invest upfront with a larger down payment, that buyer is likely to obtain a lower acquisition price.


Building your own

Now we turn to those deciding to hold onto their wealth management division. As you may expect, I’d hope that most of our readers are planning to remain in the wealth management business, but I also hope that you make a decision to thrive and change with the times and the needs of your clients. In financial planning, as with any other business, what got you to where you are today is not likely to get you to your next level of success.

Between the fiduciary rule, price compression and solid online alternatives, wealth management providers more than ever may be asked about the value that they bring to the table. Ask yourself these questions: What can our firm do for clients that they can’t get anywhere else? Why should clients pay me anything for wealth management or asset management? Why should clients pay my firm as much as they’d pay for a robo-investment platform? Why should my clients pay my firm four times the robo cost? The better firms have great answers for all questions, including the important last question. The answer will most often be driven by your relationship and services you proactively provide.

Service is No. 1. Your clients need to feel that you are providing them with service that they simply would not get if they went the unbundled, discounted route. They need to know that you care for them. This isn’t because you shower them with gifts or tell them how much you love them. It should be through your actions and proactive services that they sincerely appreciate.

Your clients need to know, perhaps most importantly, that you know and understand them. They want you to understand their family, their business, their financial and moral compass, to be better equipped to guide them through many issues that are not denominated in dollars, but by care. Issues such as designing a protected estate plan for future generations, or a business succession plan that carefully considers the people decisions, and not just how to value the firm or how much insurance to buy, or an education plan for their grandkids that is more thoughtful than simply writing checks. They want to know how much you care.

John P. Napolitano

John P. Napolitano

John Napolitano, CFP, CPA, is chairman and CEO of U.S. Wealth Management in Braintree, Mass. Reach him through JohnPNapolitano on LinkedIn or (781) 849-9200.