3 Myths About Buying a Financial Adivsor’s Book of Business

The average financial advisor is between 51 and 55 years old, with 38% expecting to retire in the next ten years. It’s safe to say that many advisors will be thinking about succession planning and may be interested in selling their books.?

As a newer advisor, this is a great opportunity for you. It's a strategic move for business growth, but only if done correctly. Our firm has handled many of these transactions, and certain myths seem to be common in the industry.

Let’s debunk three of the most common myths we’ve heard surrounding the purchase of a financial advisor's book of business.

Myth #1 - Buying the Shares = Buying the Book

Many people believe that a book of business is owned by a corporation and that a share purchase will entitle them to it. In many cases, this is not true, at least not without a lot of careful planning.?

CIRO (the Canadian Investment Regulatory Organization) does not currently allow corporations to be recipients of the income stream generated by investment portfolios. It must be paid to a person, the licensee, who is the owner of those revenue rights. Therefore, purchasing the shares of a corporation would not entitle the buyer to receive that income stream.

There are some strategies that can be implemented, but the vast majority of sellers have not done the years of foundational work and planning needed to make them possible.?

Understanding these nuances is crucial and can help you to avoid misconceptions and ensure a smooth transaction process.

Myth #2 - There’s No Need to Do a Valuation

There are two reasons that skipping a valuation is a risky move.

First, a comprehensive valuation provides insights into the true worth of the business, helping buyers make informed decisions about the purchase price.?

Secondly, it has tax implications. Your taxes are calculated based on the value of the transaction. Even if you overpay for a book of business, you are still responsible for those taxes.?

Skipping a valuation is a decision that is penny-wise and pound-foolish. Given the size of these transactions, it simply makes good business sense to incur the expense of a valuation.?

Myth #3 - I Don't Need to Hire a Lawyer

Buying a book of business is a large and complex transaction, and you will always benefit from strategic legal advice. Many transactions leave buyers vulnerable to risks down the road, but hiring a lawyer experienced in financial advisor acquisitions can help you prevent that.?

At Beeksma Law, we provide comprehensive legal advice tailored to the unique needs of financial advisors. We understand the intricacies of the financial services industry and can help you navigate the complexities of acquiring a book of business with confidence.

From structuring the transaction to drafting a strong purchase agreement, our experienced team is here to support you every step of the way. Contact us today to learn more and start your journey toward acquiring a successful book of business.

Disclaimer: This article is for informational purposes only and should not be construed as legal advice. Always consult with a legal professional for specific guidance.