The Seller's Stewardship Test: How Do You Know Your Clients Will Be Cared For After You Sell?

If you're an independent financial advisor approaching transition, you probably have a pretty good idea what your practice is worth.

Or at least you know how to find out.

There are valuation firms, consultants, aggregators, investment bankers and potential buyers willing to help answer that question.

But there's another question that may be harder to answer:

How do you know your clients will actually be cared for after you leave?

Not promised to be cared for.

Not included in a presentation about culture and continuity.

Not assigned to a successor whose biography looks impressive.

How would you know?

That's a very different due-diligence problem.

The Final Recommendation

Think about what selling your practice actually means.

You've potentially spent 20, 30 or 40 years helping families make consequential financial decisions.

Some clients have been with you through retirement.

Deaths.

Divorces.

Market crashes.

Business sales.

Health problems.

Inheritances.

Children.

Grandchildren.

They didn't simply entrust assets to your firm.

They entrusted decisions to you.

Eventually, you may make one final consequential decision affecting nearly every one of them:

Who gets to take care of them next?

That's not merely a transaction.

It's a stewardship decision.

The Buyer Is Conducting Due Diligence on You

When someone considers buying your practice, they're going to investigate it.

Revenue.

Margins.

Client demographics.

Asset concentration.

Retention.

Growth.

Fees.

Technology.

Employees.

Compliance.

Contracts.

Founder dependency.

They want to understand exactly what they're buying and what could go wrong after closing.

They should.

But there's another side to the transaction.

What due diligence are you conducting on them?

Not simply:

What's the multiple?

How much is cash at closing?

What's the earnout?

How long do I need to remain?

Those questions matter.

But your clients won't experience your purchase multiple.

They'll experience the buyer.

The Seller's Stewardship Test

Here's the question I think every independent advisor approaching transition should answer:

If two buyers offered exactly the same price for your practice, what would you need to know before deciding which one deserved your clients?

Remove price from the equation for a moment.

Now what matters?

Who will actually sit across from your clients?

How will that person make decisions?

What will happen to the service experience?

Will fees change?

Will investment philosophy change?

Will planning change?

Will clients have the same access to an advisor?

How is the successor compensated?

What incentives influence their recommendations?

Who controls the firm?

Who owns the firm?

What obligations exist to outside capital?

Could the acquiring firm itself be sold?

What happens to your clients then?

What promises survive after you're no longer there to enforce them?

And perhaps one of the most revealing questions:

Can you speak with advisors who sold to this organization three or five years ago and ask what actually happened?

Better yet:

What evidence exists that clients successfully transitioned and remained well served after the founder left?

That's stewardship due diligence.

Don't Confuse a Succession Plan With Successful Succession

Naming a successor doesn't make your business transferable.

Signing an LOI doesn't make your relationships transferable.

Getting an attractive valuation doesn't make your client experience transferable.

And selling your practice certainly doesn't guarantee that the values responsible for creating those relationships will survive you.

That's why advisors need to think about two different kinds of transferability.

Economic transferability: Will the revenue, assets and enterprise value survive the founder?

Stewardship transferability: Will the standard of care and client experience survive the founder?

You can succeed at the first and fail at the second.

For many independent advisors, that would be a hollow victory.

Apply Your Own Advice

There's an irony here.

Financial advisors spend their careers telling clients to look beneath the surface.

Understand incentives.

Identify conflicts.

Know who gets paid.

Know who controls the decision.

Understand the downside.

Perform due diligence.

Don't make consequential financial decisions based solely on the sales presentation.

So when it's time to sell the business, apply the same standard.

You wouldn't want your client making a multimillion-dollar decision without understanding who gets paid, who controls the outcome, where the conflicts exist and what happens when things don't go according to plan.

Why would you make the decision about their future any differently?

Independence Should Give You Options

This is also why transition planning shouldn't begin six months before you want to leave.

If you're 50+ and believe you may transition during the next three to five years, the work starts now.

Reduce founder dependency.

Document how decisions get made.

Make your advisor value visible.

Build relationships that can survive your absence.

Capture the behaviors responsible for client loyalty.

Develop evidence that another advisor can successfully deliver value to those relationships.

Make the business transferable before you need someone to buy it.

Because preparation creates something extremely valuable:

Options.

Stay.

Scale.

Step back.

Develop an internal successor.

Merge.

Sell.

Partner.

Choose a larger RIA.

Choose a smaller one.

The objective isn't to decide today which path you'll eventually take.

It's to make sure that when the time comes, you are choosing rather than settling.

One Final Question

Before asking:

What will someone pay for my practice?

Ask:

How will I know my clients will be cared for when I'm no longer there to make sure they are?

The buyer has a responsibility to perform due diligence on your business.

You have a responsibility to perform due diligence on their stewardship.

No one else will do it for you.

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