Eight years ago, Twyla Dawn Hardham, CFP, sold her practice using a four-page buy-sell agreement and a handshake. Not a single thing went wrong.

Then in February 2022, the six-year MDRT member from Kelowna, British Columbia, Canada, sought to purchase a practice from an advisor whom multiple people had recommended because of their similarly conservative investment styles. Yet the buy-sell agreement was literally 90 times longer, and the experience was 90 times worse.

But hold on. There actually were several aspects that went well when Hardham acquired her practice in July 2022, which included an administrative staff member who helps handle insurance and investments for 210 families. Here were some positives:

• The seller provided a one-page bio about her clients, including information about relationships between clients (family members, friends, etc.) and even their reaction when they found out the practice was being sold. The bio also included the clients’ investment style and information about their personality.
• The seller also called the A (then B, then C) clients and communicated, using a script predetermined with Hardham, about the sale. She indicated that the clients were in good hands and that soon she and Hardham would schedule an in-person meeting with them.
• Within 24 hours after those calls were made, an email was sent with an embedded photo of the seller and Hardham together, as well as a note from the seller and an introduction from Hardham with her individual photo and signature. 
• Hardham retained one existing staff member and the same physical space, which maintained a sense of familiarity for the clients.
• Within two months of purchasing the business, Hardham hosted a launch event with the seller for A and B clients with food and beverages, a DJ, on-site photographers and videographers, $3,000 in giveaways, door prizes and gift bags valued at $400 for each attendee. The bag also included a mini bottle of champagne with a customized bottle opener sporting the practice’s logo and launch date of Hardham taking over. “The common feedback we received was it was one of the nicest events they’d ever been to,” Hardham said.

That said, the frustrations and surprises that followed were numerous, and Hardham’s challenges can make great advice for anyone facing a similar situation moving forward:

Red flags

Conspicuous omissions. Remember those client bios? It turns out that the seller didn’t write them for several clients because approximately one-third of her A clients were composed of the seller’s relatives. “They all had different last names because she was married; I didn’t realize until I started going through the book of business,” Hardham said. Also, Hardham’s top client has a bio that indicates some personal information — but nothing about the fact that she is one of the seller’s best friends.

Leaving, sort of. The seller didn’t want to change the name of the company, which was her name, until the holdback was distributed. She also didn’t want to release her CFP license and wanted to continue doing business from a distance after moving two hours away. The seller had given her personal cell phone number to many clients and took their contact information. She even continued to make unofficial recommendations to a handful of clients before they met with Hardham for a financial review. Hardham still wonders if the seller will try to reacquire some of her past clients — who, again, included many family members and close friends — when the two-year holdback period is over. 

Outdated value. The seller wanted to use the last six months of 2021 as the business valuation, essentially taking the market at its peak even though it had already dropped when both parties were working on the acquisition. Hardham suggested using the past two years as the sample revenue, but they compromised on one year. If Hardham were to do it again, she’d bring in a third party to handle the valuation.

Frustrations

That massive, 360-page agreement. Hardham recognizes that she became burned out by the extent of the buy-sell agreement, which included several problematic details. Such as: If a client withdraws funds for “lifestyle purposes,” it doesn’t impact the book value. That vague term gives clients (most of whom are in the withdrawal stage of life, not accumulation) the ability to take out a high percentage of their account for a wide variety of reasons. The result could transform a client for whom Hardham paid $30,000 into one that’s now only worth $3,000. If she could have a do-over, Hardham would’ve structured the purchase as a three-year payment deal that determines the final purchase price after three years to better protect the purchaser.

Archaic CRM. The seller indicated that her CRM was fantastic. In fact, it was a relic. The supplier doesn’t even employ a direct support person for that system anymore, and Hardham needed a lengthy, expensive replacement to ensure the maintenance and protection of all data. “I should’ve done my due diligence to understand the existing CRM,” Hardham said. Plus, the office computers were 10 years old, requiring Hardham to buy all new computers and monitors.

Repeated rebranding. Hardham compromised on the practice’s name, going with SH Financial because it was both the seller’s initials and an abbreviation of the desired name, Safe Harbor. After the holdback ends, and the seller receives her final payout, Hardham can change the name again — which means relaunching the website (acquiring the domain name required 10 months of negotiations) as well as all other necessary elements of digital and physical rebranding. “It resulted in massive expenses, time and energy for me and my staff from a contracting and licensing standpoint and more,” said Hardham, adding that she regrets spending so much time and money on her business card and logo rather than hiring a third party. “It’s been a challenging process, to put it mildly. But I’ve got Safe Harbor waiting in the wings.”

Communication. In addition to the sales price, the seller wanted to be paid to work alongside Hardham for three months to a year. Such an arrangement
typically should be included in the purchase price. When Hardham indicated that covering this expense would put too much financial pressure on her, the seller fast-tracked the in-person client introductions from two months to a month and has shown no interest in maintaining communication with Hardham.

Lessons

If she could do it over, Hardham would have spent three months in the business prior to the purchase. Had she done that, she would’ve seen the way the seller operates, how she talks with clients and staff, and learned much more about the equipment and processes in place. 

Fortunately, Hardham has lost only two clients. She is preparing for when the holdback ends by building trust and creating value with existing clients and increasing her assets under management so there will be little-to-no impact if the seller’s family members leave. “It has been a journey; I feel like so much was missed now that I’ve been through this,” Hardham said. “Now, I’d consider myself an expert in acquisition, both what to do and what to be cautious of.”