Your Transition Team & Nonadvocacy Support (Excerpt)

Posted by FP Transitions on Mar 9, 2017 8:09:21 AM


The following sections are excerpted from the book Buying, Selling, and Valuing Financial Practices by FP Transitions president and founder David Grau Sr., JD.

Let's highlight the importance of having a strong transition team in your corner as either a buyer or a seller. In fact, it's important to have a comprehensive team when jumping into most business evolutions, including (but not limited to) entity creation, compensation restructuring, and internal succession planning.

Assembling and Managing Your Team

Advisors who want to buy or sell a business will need some help to do the job right. A typical team for this purpose will include:

- A qualified valuation analyst

- A tax professional

- A lawyer

- Someone familiar with your regulatory structure and your IBD/custodian’s rules & procedures

- A qualified and impartial intermediary

To be clear, this list applies to both buyers and sellers. Both parties typically need their own team, with some slight overlap.

In our experience, one of the most valuable members of the team is going to be each party’s CPA, or accountant; that’s because properly managing cash flow and helping advisors realize value on the tax-efficient basis is part of what this group does for a living. FP Transitions works comfortably with several hundred CPAs and accountants every year to assist independent advisors who are designing and implementing their exit plans and, alternatively, their succession plans. Nothing in the processes discussed to this point, with the exception of performing a formal valuation, should be unfamiliar to an experienced tax professional.

Having a good lawyer on the team is part of the process, too. It is not always necessary to have an attorney with a high degree of securities law knowledge or expertise, but at the very least, they need to know what FINRA stands for and/or the basics of the Investment Advisers Act. For the most part, find an experienced attorney for the team who practices business law and knows a thing or two about M&A work. Don’t overlook the important role that your attorney will perform in this process–their job is to be an advocate for you, and only you. Their job is to help you steer clear of unnecessary risks, or at least help you understand where problems might be encountered, even how you can better structure the deal to your advantage. Of course, the other side’s attorney is tasked with the same mission. Neither side should allow their attorney to negotiate the economic aspect of the transaction–that is not their skill-set and is mostly the job of the buyer and seller, maybe with help from their CPAs and accountants, valuation personnel, or the intermediary.

A Qualified Intermediary

A qualified, impartial intermediary is descriptive of a company like FP Transitions, who assist buyers, sellers, or both in their quest to do the job right, not unlike a general contractor in the building of a home. Advisors interested in buying or selling an independent financial services or advisory practice find that the process takes a lot of time. In addition, practice and business owners do not go through this process very often and usually don’t have much experience, at least as sellers. Many advisors do not always negotiate well on their own behalf, and are not familiar with the legalities, taxes, rules, and regulations surrounding a merger, sale, or acquisition. Most sellers, and first-time buyers, aren’t even sure what questions to ask.

The role of an experienced intermediary is to bring industry-specific knowledge and expertise to bear for the client during the M&A process. As a qualified intermediary, FP Transitions works with both buyers and sellers, and their respective legal counsel and tax professionals, and their IBDs and custodians, to achieve success. In addition to working with both sides in a nonadvocacy format, FP Transitions also provides valuation support, deal structuring expertise, documentation, analysis of seller or bank financing, general guidance, tax strategies, post-closing transition planning, and even post-closing mediation if needed.

Attorneys and CPAs or accountants are not qualified intermediaries–they have an important, but very different and more narrowly focused job. Business brokers, if their only function is to introduce a seller to a potential buyer, would not be considered a qualified intermediary. Under no circumstances is a practice management staff person at a buyer’s and/or seller’s IBD/custodian a qualified intermediary–they are well intentioned and knowledgeable, but their job is to make sure the clients and assets don’t leave their network.

Optional Players

Consider including your spouse or significant other in the M&A process as well, maybe not as part of the “team,” but certainly within the information loop. Buying or selling a business is a major process and knowing how the details and documents interact can help take some of the mystery out of it.

Missing from this list thus far is the investment banker. Do you need one? Most advisors would say no; but it depends on how you view this team member and the size of the transaction. Investment bankers tend to work with firms and larger businesses almost exclusively, thereby applying to about 2% if the independent industry. Typically, an investment banker will act as some kind of intermediary with multiple functions. Their role ranges from search coordination to deal negotiation to finance structuring. Depending on the investment banker and the transaction size, only one of these services may be offered. Ultimately, however, both buyer and seller can profit from using some kind of intermediary. This full range of services allows the more complex businesses to explore a wider range of options while smaller and mid-sized practices can benefit from a la carte services. Either way, buying or selling is often made much easier by including the use of a qualified intermediary. The fees for such services vary, but are often seen in the savings generated by having a knowledgeable and coordinated team craft and guide the transaction. In other words, a good intermediary will often pay for themselves.

Buyers may also need to add one more professional to this list, a lender, depending on financing choices. Sellers can drive this choice by knowing when and how to utilize bank financing and reduce their transaction risk–a good idea for every business and many larger practice models.

Advocacy Versus Nonadvocacy Approach

Both buyer and seller need to give some thought to directing their team members and articulating each role in the due diligence and negotiation process. At FP Transitions, we don’t believe in “fighting to the finish” in order to close a transaction. Although M&A closings in other industries may see combative attorneys “duking it out” over a bloodied closing table, in this industry, the closing merely represents the first day in the important transition process centered on client satisfaction with the exit plan.


Successfully transferring the most valuable asset of an advisory practice, the client base, requires that both buyer and seller leave the closing table as cordial business partners. Only on the day after the closing do both parties begin the introduction process with the clients. That transfer process ultimately determines the success of the sale and the value of the practice or business. With this goal in mind, a truly successful deal is one in which the transaction’s momentum, and trust, continues well after the closing date. This industry is unique in this aspect. We often say that our approach is one of advocating for the deal. Also referred to as a nonadvocacy position, this approach an often be counterintuitive to many attorneys.

FP Transitions’ nonadvocacy approach does not by any means replace the use of attorneys. Before anything is signed, each side confers with their individual legal and tax counsel, and we subsequently discuss and include requested suggestions or modifications in the deal structure and the documentation. An experienced intermediary operates on the premise that input from all of the team members is vital and will help coordinate the many roles and responsibilities. The point is to ensure that everyone works together with the same goal in mind. The end result is that 90% of our transactions are completed and usually with a very high post-closing client retention rate measured in the years after closing. In hindsight, the post-closing, default rate is nominal, so something about the process works quite well, and has for almost 20 years. Nonadvocacy is an approach that has worked well for thousands of buyers and sellers who made the choice to get along and work together for the good of the clients they serve.

Read more in the book Buying, Selling, and Valuing Financial Practices, available now on Amazon.

Topics: Selling Your Practice, Acquisition, Buying & Selling, "Buying, Selling, and Valuing Financial Practices", Published