Is It Worth Purchasing a Financial Planning Practice?

Are you an entrepreneur thinking about your next big career move? Or are you someone who dreams of becoming a financial planner? Here’s an intriguing option for you: buying a financial planning business. 

It means taking over a business that’s already up and running. You get their clients, their income, and their way of doing things. However, there is a catch. 

When evaluating if it’s worth buying a financial planning practice, it’s important to also consider the challenges and risks too. In this guide, we’ll explore whether buying a financial planning business is a smart move and if it’s the right path for you.

Business owner happy with the advantages of purchasing a financial planning business.

The advantages of purchasing a financial planning practice

There are many advantages to purchasing a financial planning practice, including:

Instant client base

When you purchase a financial planning practice, you immediately inherit the seller’s client base. This can be a major advantage, as it can take years to build a successful client base from scratch. 

Established reputation

A well-established financial planning practice will typically have a good reputation. This can make it easier to attract new clients and build trust with them. 

Existing infrastructure

A financial planning practice that has been in business for a while will typically have an established infrastructure in place. This includes things like office space, marketing materials, and financial planning software. This can save you a lot of time and money, as you won’t have to build these things from scratch. 

Potential for growth

A financial planning practice that is well-managed can have the potential for growth. This means that you could increase the number of clients you serve, the revenue you generate, and the profits you make. 

Financial planner budgeting to buy a financial planning practice.

The challenges and risks of buying a financial planning practice

On the other hand, purchasing a financial planning practice can also come with its share of challenges and risks. 

Buying a financial planning practice can be a great way to get started in the financial services industry, but it’s important to be aware of the challenges, risks, and disadvantages involved. Here are things to consider.

High cost

Buying a financial planning practice can be expensive. You will need to pay the purchase price, as well as legal and accounting fees. 

Competition

The financial planning industry is competitive. You will need to find ways to differentiate your practice from the competition. This could include offering unique services, developing a strong marketing plan, or building relationships with referral sources. 

Compliance

Financial planners are subject to a number of regulations. You will need to make sure the practice you are buying is in compliance with all applicable laws and regulations.

Due diligence

It is important to do your due diligence before buying a financial planning practice. This includes reviewing the practice’s financial statements, client list, and marketing materials. You should also meet the current owners to learn about the practice’s operations and culture.

Integration

Integrating a new practice into your existing business can be challenging. This includes transferring client data, systems, and processes. You may also need to hire new staff or train existing staff on the new practice’s procedures. 

Business buyer contacting business seller in the process of buying a financial planning practice.

The process of purchasing a financial planning practice

Purchasing a financial planning practice is like taking a journey to a new destination. The journey might seem daunting, but with careful planning and the right guidance, it can be a rewarding one. 

Due diligence

Due diligence is the process of gathering information about a business before making a decision to buy it. This process includes a thorough review of financial statements, such as income statements and balance sheets, spanning several years. Doing this helps you avoid surprises and make sure you’re making a good choice

Remember to also think about their reputation, how they use technology, their culture, and if they can grow in the future. 

Negotiation

When buying a financial planning practice, it’s important to understand that each deal is unique and will involve a lot of details. This includes the price, the timing, and how it all works. 

Negotiation won’t just involve talking about prices, you will also talk about what happens after the sale such as who will be in charge and how clients will be handled.

Negotiation is usually handled in three main ways. 

  • Outright purchase. This is the simplest way. The buyer and seller agree on the price, when it’ll happen, and the terms. They look at the business’s finances and other factors that might affect the price. 
  • Gradual buyout by someone else. In this approach, the seller keeps most of the business for a few years while getting paid bit by bit. This allows the buyer to gradually take over and learn the ropes. 
  • Internal succession. Here, the seller isn’t retiring just yet but wants someone to take over late. They pick and mentor someone less experienced. This protege gradually assumes more responsibility.

All these methods let the seller get paid over time and may involve continued involvement after the sale, depending on what’s agreed upon. The flexibility of these options caters to different situations and needs. 

Financial planner buying a business and seeing business success.

Financing the purchase

Financing the purchase of a financial planning practice can be done through various methods. Some buyers might use their savings or personal funds, while others could secure a bank loan.

Seller financing is also common, where the seller provides a loan to the buyer, typically paid over time. This approach often aligns the interests of the buyer and seller, and can be structured creatively. Additionally, buyers might consider using external investors or partners to help fund the purchase. 

The choice of financing method depends on the specific circumstances of the deal and the financial capabilities of the buyer.

Transitioning clients

Transitioning clients during the purchase of a financial planning practice is a critical aspect of the process. It involves building trust and rapport with the clients who will now be under new ownership.

Typically, the income owner conducts introductory meetings with clients to establish a connection and ensure a smooth transition. During these discussions, clients often share their financial goals and any concerns related to the change in ownership. 

Effective communication is key in maintaining client relationships and ensuring they feel comfortable with the new advisor. The goal is to make the transition as seamless as possible, ensuring that clients continue to receive high-quality financial planning services.

financial planning practice

In conclusion, buying a financial planning practice can be a smart move for financial planners looking to grow their businesses or newcomers wanting to start in the industry. It comes with perks like an existing client base, steady income, and established ways of doing things. However, it’s crucial to be cautious because it also has its difficulties and risks. So, take your time to weigh the pros and cons before making a decision. 

Remember, you don’t have to navigate this path alone. Wilkinson Accounting Solutions, a trusted business accounting firm, is here to assist you in every step of the process when buying a financial planning practice. From evaluating the financial health of the practice to conducting due diligence and providing valuable insights, we are your partner in making an informed decision. 

So, if you’re contemplating this significant move in your financial career, reach out to Wilkinson Accounting Solutions today to explore the possibilities and take the next steps toward a successful financial planning practice acquisition

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