Two perspectives

The above question seems like it would have an easy answer.

But advisors know that important decisions require digging past assumptions for a deeper understanding of the information involved. And, in fact, two MDRT members take two very different perspectives when faced with this consideration:

Perspective 1—Keep It

Asvin Chauhan, MIFP, Dip FA, a 25-year MDRT member from Leamington Spa, England, UK

The value of my business is only what someone is prepared to pay. When I evaluated my magic number, I initially was told I’d get a 3.25 multiple, and the industry standard increased to 3.5 or 4. Two years ago, a national independent advisor firm raised a billion-dollar bond against the business that is paying 8% of assets under management. That is double what I thought, and it’s potentially a small window of opportunity to take advantage of this. If it’s all about the money, now is the time to sell.

But for me, it’s not just about money. The practice must go to the right home. What’s essential is that I need to fund my retirement from my income, just as I advise most of my clients to do, and not from a sale where valuations might fluctuate at the least-convenient time: as the sale approaches. I thought hard about my situation. I know an advisor in the U.K. who is in his mid-40s who collected an eight-figure check. I’ve been in the business for 32 years, and it’s only during the last seven years that I’ve started to experience, for me, real financial freedom. I’m not talking about a yacht or Lamborghini every year. I’ve been waiting a long time to buy a particular prestige vehicle, and I think it’s coming in the next few years. Am I going to sell the firm for the car? Our home is nearly paid for, and we might build a new one. Is it time to cut the golden goose? The answer is no because I think we can do all of this from our income in the near future.

Also: What hobbies do I have that I’d like to spend more time on? We have fun when we travel. On the weekend and in winter, though, I watch TV and mess about with our dogs. In the summer, I mow the grass. I don’t currently have many other interests that I wish to pursue. So, if I retired now, my fear is how my health might be impacted.

I spent many difficult years in the business, and in the last seven years we’re really seeing the number of clients, assets under management and income increase at an exponential rate. I will still be happy even if I sell the practice for less later. It’s not about the payout for me. It’s really important to have a plan to go to in retirement, and I don’t have a plan to go to currently because I’m not ready to retire. And the money won’t help that.

Perspective 2—Sell It

Alessandro M. Forte, FCII, CFP, a 25-year MDRT member from South Yorkshire, England, UK

I would offer the completely opposite view. I’m part of a network structure in the U.K., which follows a formula when valuing businesses. So, the offer being made to me is 7.5 times recurring income, which is substantial. Of course, I have no particular desire to retire, but the opportunity to capitalize on some or all of the work I have put in over 34 years is, above anything else, financially prudent.

In 2019, I persuaded a client to take a very generous offer for his business. He was naturally reluctant but agreed. Three months later, the value of the business he sold decreased 67% from the sum he received. 

As a financial advisor, I know from a good deal of experience that things can change. I believe we all start businesses to eventually sell them, and with a very substantial sum being offered to me, I take the view that I should heed my own advice: Create financial security for myself and then build a new client base again, since leaving this wonderful profession isn’t something I am ready to do at this time. 

I take the view that I have no control over things like regulatory changes, business valuations or circumstances, like illness, that may prevent me from continuing in the business. If I take what’s on offer, I can keep 20 to 25 ultra-high-net-worth clients, reinvent myself as an advisor, do more of the things I want to do, like speaking, writing my second book, spending more time at my vacation home in Italy, and being more available for my children and grandchildren. And with enough revenue from my continuing advisory work, I won’t need to touch the capital, which I can then look to grow in what should be favorable market conditions over the next five years.

If you had told me when I was 21 and just starting in financial services that I’d be in this sort of position before my 55^th birthday, I would never have believed you. So, I think it’s important to be pragmatic and consider lifestyle as well as the commercial aspects of these opportunities, which do not come along too often.

I regularly tell advisors and clients: “Make a list of the things you do every day. Now make a list of the things that make you happy. Compare the lists. Adjust as necessary.” A profound but very important message which I believe we should all heed.