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Financial planner needing some advice!

Discussion in 'Business & Startup Investing' started by Bebe, 5th Jul, 2010.

  1. Bebe

    Bebe New Member

    5th Jul, 2010
    Hello everyone,

    I am currently a financial planner working for a bank and am considering starting my own FP practice.

    I am currently talking to a few licencee's with the major one being MLC and i am thinking of buying a client register for a multiple of 3 times the reoccurring revenue.

    I have about 6 years experience in the industry and am 27 years old and i need advice/help on what other people think about the do's and dont's of buying into a client register (whether it be MLC or AMP).....any help/discussion would be great!

  2. Superman

    Superman Well-Known Member

    6th Nov, 2007
    Gold Coast, QLD
    I may be able to help.

    I have observed the purchase and integration of a significantly sized financial planning 'book' over the last few years.

    You really need to be careful and do your due diligence. There are so many potential issues and pitfalls.

    Some tips:

    - Have an agreement where you only pay for the clients you retain when you purchase them - i.e. pay 50% upfront, 30% after 1 year and 20% after two years. This way if all the clients desert when they find out a new planner is taking over you don't have to pay for them - stretch it out as long as you can.

    - Why is the person selling the book? Are they retirement or are they getting out before the going gets rough? What are they going to do after they sell? Ensure there is a restraint on trade that ensures they can't re-start their practice down the road and steal their old clients back or even market to them in another business they operate.

    - Is the book you are buying made up of other previously bought books that are just sitting there earning trail commission and have never been reviewed?

    - What are the demographics of the clients contained in the book - is there good potential for future revenue growth?

    - What % of clients in the book are 'active' i.e. that have regular contact with the outgoing planner(s)? This is important becuase I beleive you are legally required to notify all clients that the adviser is changing and simply by doing that you will lose a significant proportion of them.

    - What is the handover procedure going to be? How will it be managed, will you get to meet all the gold and platinum clients?

    - Look at where the income is being generated from the clients - has the planner/practice you are buying from simply been generating income by selling tax effective investments, property trusts or getting trail commissions from super contributions or other revenue sources which are not going to be there in the future due to legislation and market changes

    - Determine where the client referrals are coming from - will these referral sources be retained / maintained / improved? Is the ongoing generation of revenue dependant on one or two key referral sources (accounting practices) - are these referral sources / referral fees commissions locked in or can they refer FP work to other planners?

    - Review a random selection of files and look at the quality of the plans / SoAs / file notes and the overall compliance record - are you buying into something where you are going to spend a lot of time rectify others mistakes?

    - Are there any potential issues in the portfolios you are taking over - such as frozen funds that can't be redeemed? Any unhappy clients?

    Basically as a purchaser you want to find as many problems and reasons you can to absolutely screw the price down to you pick up a better deal - and remember that for every problem you identify before purchase, you will find at least one more after you purchase.

    You may also have some difficulties becuase of your age - I am not saying that you aren't a talented and intelligent planner - but if you are dealing with a portfolio of clients who are used to the same OLD planner they have had for years and years, it may be a difficult transition for them and you might lose a lot of them in the first couple of years.

    In addition to the above industry specific issues, you have all the normal business purchase issues such as financing, contracts and valuation etc.

    Good luck and I hope you get some other valuable posts from other InvestEd members.