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Offers in the Mail


For many financial advisors, it has become commonplace to receive unsolicited offers in the mail. The offers to buy practices usually promise a competitive valuation and purchase price, great terms and future opportunities, and are backed by private equity, bank financing, or other cash reserves. More than anything, these letters bring hope, choices, and affirmation that an advisor has built something valuable and transferable.

Some of these letters arrive from well-known firms but many are from smaller, previously unknown suitors whose marketing strategy is to grow rapidly through practice acquisition. The advisors we talk to on a daily basis tell us about these letters dismissively at first, but they also say they keep the letters for future reference–just in case. Hope and choices are good things, even if they’re not needed today.

It is always flattering to be recognized, wanted, and valued, even if your name comes from a purchased mailing list. The more important point may be that these letters get many independent advisors, like you, thinking and wondering about the future. Questions arise: What is my value? What options do I have? Is this the best offer, or maybe the only offer, I’ll ever get? Can I sell my practice and keep working, given that I’m not ready to fully retire right now?

Just as you help your clients understand how to plan for the future and better manage their financial options, let us help you consider these questions and make a more informed decision about that letter in the mail. 

A Bird in the Hand

It is possible that the first prospective buyer you meet, or that first letter you receive, is actually the perfect acquisition partner, but how do you know?

One place to start is to pick up the phone and have a conversation with one of those letter writers. If the conversation goes beyond a call or two, it is wise to sign a mutual non-disclosure agreement (NDA). But before you even pick up the phone and listen to a buyer tell you what they want and what they think you’re worth, you’d be wise to know what you want and what you ARE worth.

The first step in discovering these answers is to complete a thorough, third-party professional valuation to understand the unique facets and value of your practice. A valuation will provide a dose of reality and perspective, especially since a market-based approach ties an opinion of value to the marketplace, including transactions that were closed as recently as the day before. These are facts you’re going to need moving forward with any consideration to sell, and this process will give you a decided advantage in any subsequent negotiations.

The next step is seeking out expert M&A guidance. At FP Transitions, this means we will review your offer letter and valuation results. We’ll tell you what we think and we’re not afraid to speak our minds. Depending on the offer being made, and of course your fit and synergies with the offering firm, we may well recommend that you proceed with the offer, perhaps with some slight adjustments to reduce your risk and address your needs. Our expert advice will help you understand how you’ll be paid, the tax implications, and the common contingencies of the deal structuring process. We may also offer other options that might make more sense financially, may take better care of your clients and staff, and give you everything you want and more. The final choice is entirely yours. Either way, you’ll be in a better and stronger position to make a well-informed decision and to carefully consider your future plans.

In our non-advocacy system, we work with both buyers and sellers. After completing almost 2,000 transactions, we’ve learned that smart, experienced buyers know what they’re doing and you, as a potential seller, may have little or no M&A experience. Some buyers are counting on your lack of experience and the appeal of a “bird in the hand,” but we think a level playing field is a better approach.

Know Your Options

Since setting up and organizing the first open marketplace for independent advisors over 20 years ago, we’ve seen a lot of things change. In fact, about every 5 to 7 years, it’s a complete sea change. Right now we’re seeing the M&A landscape change yet again with recent economic developments. The good news is that recent and in-process transactions have seen values remain steady. Buyers are still plentiful and many are qualified to acquire valuable practices. In this seller’s market you have many choices and not all involve selling quickly and walking away.

As a seller in the M&A arena, consider these different paths:

Transactions can be paid out to you at full, fair-market value quickly (two years or less) or slowly (seven to ten years), mostly at long-term capital gains tax rates and sometimes augmented with an ongoing employment arrangement. With bank financing emerging as a viable option to buyers, the use of seller financing is being reshaped constantly and seller risk, post-closing, is gradually being reduced.

In the end, almost every transaction we work on is customized for the particular buyer and seller, with no two transactions exactly alike. There are many, many options available to a prepared, informed seller.

Can You Really Do Better?

Can you really get a better offer—a much better offer—than the one in hand? The answer is: it depends on your goals for the transaction. But let’s assume that your goals can be reasonably met in today’s market. How do you find a buyer that you would be comfortable with and excited to tell each and every one of your clients about? How do you find a buyer that you would trust to manage your money? As it turns out, finding a great buyer who shares your investment philosophies, has the same workplace culture, can create a meaningful value-add, and make your clients happy with your decision, is harder than it looks. 

We have spent the past two decades helping aspiring buyers grow their businesses to meet these demands. They’ve built strong, profitable businesses with solid acquisition and merger platforms. Today there is a growing pool of qualified, diverse, and creative buyers to meet seller demand.

Buyers are certainly focused on acquiring your client relationships and AUM, but more often than not they want to retain the key advisory talent that supports those clients; that is what builds a sustainable business. Loyal, trained, and licensed staff is considered a value-add. One thing that many sellers fail to consider is that practice value can be impacted when expenses such as the seller’s and staff’s salaries are transferred to the buyer along with assets and cash flow. Sometimes the effect is nominal, and sometimes it is seismic–depending on the condition of the seller’s practice and the desired timeframe for the transaction.

There is roughly an 85:1 buyer-to-seller ratio, and this fact alone demonstrates the choices a well-prepared seller has. To be clear, this does not mean you’ll have 85 offers to buy what you’ve built. This is not eBay—there is no auction process. It’s all about best match and best fit. In order to find your best match and check all of your boxes, our approach is to audition a large pool of interested candidates and help you narrow the field to three to five qualified finalists. One of those will likely emerge as the best choice but if that letter in the mail still offers the best solution: take it, knowing you’ve made a well-informed decision.

If you’ve received a letter in the mail and you’re wondering if it’s a good offer, our consultants are available for a complimentary review. We’ll help you discover whether the offer is fair and give you guidance on if and how you should proceed. Schedule your complimentary review here.

Free Offer Review


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