The ClientWise Blog

Building Your Wealth Management Network with Business Brokers

Posted by Chris Holman on Aug 20, 2010 3:36:00 PM


One truism of the financial advisory business today is that investors are expecting increasing levels of proficiency and sophistication from their advisor(s). The advisor can respond to this internally, i.e. by adding specialized competencies and functions within the team…or externally, i.e. forming alliances with other trusted professionals. Typically (and predictably), these external alliances are with CPAs and attorneys. Less typically, more creative financial advisors are building networks with other professionals, e.g. property and casualty agents, commercial loan officers, art gallery owners, business appraisers, etc.

Whatever professional network the advisor chooses to build, it should completely be a function of the clients the advisor chooses to serve, and how they serve them. In this way, the advisor creates a virtual (and virtuous) team which works to the benefit of the clients.

Financial advisors who we are coaching who work with entrepreneurs and business owners are finding that business brokers are natural members of their wealth management network. For those advisors who are interested in connecting with business brokers in this regard, we offer the following insights:

  • Comeback is spotty. Many business brokers are only now emerging from a very tough period where listings were down 40%+. When the banking crisis triggered the recession, the brokerage business was devastated by a lack of credit. Even now, the comeback has been spotty around the country. Business brokers in New York are reporting that listings are up from last year…however many brokers in California report that 2nd quarter listings are way down from 2009.
  • An increase of self-funders. One of the trends of the past year or so is that self-funders have come into the market. In some cases, these are down-sized executives who are buying businesses…bypassing loans and putting their own savings into the purchase price.
  • Credentials count. In choosing a business broker, find one who is credentialed by the International Business Brokers Association. To become an IBBA-sanctioned Certified Business Intermediary (CBI) requires some years on the job, as well as additional continuing education.
  • Finding a specialist. The best brokers specialize in a select group of industries. Every industry has its own unique culture, history, and knowledge awareness. Importantly, business broker generalists are akin to the financial advisors generalists, i.e. they are fast becoming dinosaurs.
  • Communication is key. The best business brokers work with their clients in communicating how they manage the process. This process might include: researching the company and industry, “staging” the business for sale, valuing the business, uncovering potential buyers, providing frequent updates on interested prospects and transaction status, etc.
  • Negotiating the fee. Most usually, the broker collects a fee when the business is sold. 10% has been the industry standard, although with the weakened economy, knowledgeable sellers have negotiated better deals.
  • Time-frame for sale. On average, it takes about nine months to sell a business. Brokers will ask their clients for an exclusivity contract, and six months is the likely minimum time-frame, although like the fee, anything is negotiable.

Concluding Thoughts: Right now, buyers like private equity funds are scrounging the market looking for bargains. On the sell-side, there is a pent-up desire to sell, motivated by the fear of a possible increase in the capital gains rate. Either way, it would seem to be an opportune moment for financial advisors to connect with business brokers. Savvy financial advisors could partner with business brokers in joint marketing opportunities, and position themselves as an integral player in this process. Building your professional advisory network could take some time; however, the benefits of a mutually beneficial relationship (e.g., new client introductions for you and the broker) are worth the time and effort.

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ClientWise is the premier financial advisor coach focused on business development and management best practices for financial advisors.

Topics: Business Development