Problem Advisors Are Not Following Their Own Advice

Transcription

1 SEI Advisor Network Positioning Your Practice for the Next Step Practice Valuation & Succession Planning John Anderson Managing Director, Practice Management Solutions SEI Advisor Network Save Time. Build Revenues. Differentiate. 1 SEI Advisor Network Our Experience in Working with Advisors 6,000 Advisors Work with SEI Transition Transition Phase Phase Advisor Advisor Experience Experience Efficiency Efficiency Phase Phase Industry Industry Experience Experience & & Resources Resources Growth Growth Phase Phase $30.3 Billion in Advisor s AUM 16 Years Experience 500+ Resources Supporting Advisors Advisor Business Phases 2

2 Agenda Why Succession Planning Practice Valuation Positioning for the Future & Your Succession Options The Anatomy of a Succession Plan The Art of Letting Go 3 Problem Advisors Are Not Following Their Own Advice 61% of Advisors do not have a succession plan! Source: TD Ameritrade Institutional, Jun Survey of 500 registered investment advisors. 4

3 Problem Advisors Are Not Following Their Own Advice Advisors With Documented Succession Plans (%) By Gross Revenues (2008) Source: FA Insights, 2009 Study of Advisors: People and Pay 5 Problem Aging Population Of Advisors % of Independent Advisors By Age Discovery Database 2010 Source: Discovery Database May

4 Succession Planning Why Plan? It s not always about retirement Ensure your heir apparent has the greatest chance of success Obtain the highest possible value for your practice Continue the business culture you ve spent a lifetime developing Give employees an opportunity to buy some or all of the firm Planning makes for a good marriage when merging practices Protect your business and estate from your untimely death or disability Allowing to step out of a practice over time 7 Succession Planning Why Plan? More Family Time External Sale of Practice Degree of Planning Planned Unplanned Business Slow Down Better Work/Life Balance Family Needs Internal Sale of Practice Strategic Financial Sale Competitive Sale Personal Illness Disability Death Slowing Down Degree of Engagement Stepping Out 8

5 Succession Planning The Benefits Preserving the interest of all parties Ensure best interests of owners and estate are served Perpetuate the life and culture of the business Ensure the success of new management Ensure continuity and confidence for clients Ensure owner and beneficiaries realize full value Ensure orderly transition and avoid fire sale Insurance against untimely death or disability 9 Succession Planning The Benefits Top five reasons advisors state the need for a formal plan Supporting the long term viability of the firm 57% Satisfying client expectations that a succession plan is in place 52% Providing a smooth transition into retirement 36% Providing continuity for employees 36% Enhancing the valuation of the firm 32% Source: TD Ameritrade Institutional, Jun Survey of 500 registered investment advisors. 10

6 Succession Planning Additional Driving Factors Confronting the issues logically Is it time to retire or just cutback? Burned out due to tougher competition Overwhelmed by increased client demands Forced to cut back due to health or family issues Approached by a potential buyer? 11 Succession Planning Timing When should you begin succession planning? It s never too early Begin by building the kind of practice with the most salability Identifying and training heir apparent Dealing with structural and legal issues Legal process alone could take over a year 12

7 Succession Planning Positioning Your Practice What kind of practice would you want to buy? Sole practitioner or comprehensive business? An investment-focused firm or wealth management firm? A back office that s run internally or outsourced platform? Ad hoc client service or established client service experience? One-person show or a deep team of talented professionals? Book of commissions or steady flow of recurring fee income? 13 Succession Planning Finances And Growth Additional determinants of value Financial performance Market penetration Barriers to competition Growth opportunities Differentiated offering Leadership and culture 14

8 Succession Planning Finances and Growth Which firm offers more potential for growth? Attribute Firm A Firm B Number of clients Average client age Client satisfaction High Good Market niche Business owners, professionals Retirees 15 Valuation Multiples Industry Trends on Net Profits Source: Succession Planning Consultants

9 Valuation Multiples Internal vs. External Sales Source: Succession Planning Consultants Succession Planning Moving the Value Meter Factors that lower valuation Non-recurring revenues Recurring vs. Non-Recurring Income for Sellers Processes for investment management and client service are customized for client and driven by advisor Systems and back office are self-managed High number of relationships based on investment performance Outstanding compliance or client complaints 18

10 Succession Planning Moving the Value Meter Factors that lower valuation (cont.) Forced sale due to death and disability Declining profitability High percentage of unprofitable clients High percentage of aging clients drawing down assets Buyer more prepared than the seller for transition Perception your practice cannot run without you 19 Succession Planning Moving the Value Meter Factors that increase valuation Practice run as a business and not sole practitioner Majority of relationships involve wealth management Strong ratio of fee-only clients to commission income Majority of clients profitable Track record of long-term profitability Well established processes Source: CEG Worldwide, February 11, 2009, N = 2,094 financial advisors. 20

11 Succession Planning Moving the Value Meter Factors that increase valuation (cont.) Systems and back office administration outsourced Client service and marketing practices defined Depth of staff, including designated heir apparent Perception your practice will run well without you Clients perceive transition positively, consistent with their best interests 21 Succession Planning An Objective Look at Value When looking at your practice objectively, do you see the following? Overhead expenses substantially lower than peers Owners spend little time on operations Higher share of recurring revenue (fewer commissions) Minimum asset level for clients are enforced Higher productivity per professional 22

12 Succession Planning Selecting A Buyer Strategic Buyers Relative Valuation Low High Financial Buyers Competitors Current Partners Current Employees Low Degree of Control High 23 Current Trends The Next Generation Succession Plans Across All Independent Reps Source: 4/99 Ticker (Downer & Company); Tiburon Research & Analysis 24

13 Succession Planning Anatomy of a Plan Five steps to creating a successful plan Step 1 Determine the value of your business Step 2 Establish a short-term continuity protection plan Step 3 Establish a long-term succession plan Step 4 Grow your business and monitor value regularly Step 5 Take steps to maintain the value over time 25 Succession Planning Psychological Impacts Are you ready to move to next phase of your life? Are you truly ready to retire? Considered changes to your family dynamics Will you miss working with associates and clients? Will you miss travel and perks? Have you planned for the next step? Will you miss problem solving and feeling of success? 26

14 Succession Planning Making It Work Keys to a successful succession Buyer and seller work together towards common goal Retaining assets Communicating with clients Nurturing/retaining staff Clients view transition positively Consistent with their interests Build trust in new owners/managers Price fair to both sides 27 Succession Planning Market Trends M & A activity slows after record 2007 Source: FA Insights, Real Deals, Definitive Information on Mergers and Acquisitions for Advisors 28

15 Succession Planning Market Trends M & A activity likely to increase Industry consolidation due to protracted slowdown Generation of aging advisors (Baby Boomers) Some advisors no longer willing to go it alone Stronger competition Increased client demands 29 Succession Planning Market Trends Methods for calculating valuation Few industry standards AUM based Recurring revenue based Operating income based Net free cash flow after normalized earnings Current range 2 to 3.5 times net annual recurring revenue Comparable valuations difficult to find 30

16 Succession Planning Resources Consulting Firms FP Transitions Succession Planning Consultants Investment Planning Counsel Industry Research Moss Adams Tiburon Research & Analysis Investment Executive.com Financial Services Institute Broker Dealers Turnkey Asset Management Providers (TAMPs) 31 Succession Planning Article & Checklist Position Your Practice for the Next Step Article 32

17 Succession Planning Conclusion Ensuring your future Too few advisors have given succession planning the attention it deserves It s not just about retirement Think about issues logically. Are you ready to move to next phase of your life? Take steps now to build the kind of practice you would want to buy Identify the factors that affect valuation Focus on the keys to a successful valuation Be prepared to cope with an uncertain M&A market 33 Solution Overview SEI Advisor Network About SEI and the SEI Advisor Network Save Time. Build Revenues. Differentiate. 34

18 SEI Who We Are SEI is a leading global provider of wealth management solutions. We help professional wealth managers, institutional investors, and private investors create and manage wealth and enable their long-term successby providing solutions that are both comprehensive and innovative. A Market Leader Administers $402 billion assets 1 Manages $164 billion assets 1 Processes 1.5 million end-investor accounts 3 #1 global provider of Bank Trust technology 9 of the 20 largest North American banks are clients A Successful Company Founded in 1968, a public company since 1981 (NASDAQ: SEIC) 2009 revenues: $1.0 billion net income: $174 million 2 Market capitalization: $3.5 billion 2 SEI Advisor Network 16 years of experience in providing outsourced solutions to advisors Over 6,000 Advisors using SEI s Solution Over 170,000 end-client accounts $30.3 billion in advisor s AUM 1 One stop accountability with SEI Private Trust Company 500+ dedicated professionals supporting the SEI Advisor solution SEI is the #1 Third-Party Managed Account Provider 4 A Global Company employees Operate from numerous offices worldwide 1 Assets as of September 30,, As of December 31, End-investor accounts as of December 31, 2008 * Assets as of December 31, Q End-investor 2010 Summary accounts as Cerulli of December Associates 31, SEI Advisor Network A Comprehensive Solution Investment Philosophy Investment Banking & Wealth & Institutional Programs Services Investment Strategies Wealth Programs Administration & Technology Admin, Accounting & Reporting Technology Business Transition Practice Management Programs Case Management Marketing & Growth Programs Scientific, Disciplined, and Proven Approach Supports Liquidity, Accumulation, and Distribution Targeted Asset Allocation Multiple Specialist Managers with Dynamic Asset Allocation Ongoing Oversight Mutual Fund Models Separate Accounts Goals -Based Strategies Distribution - Focused Strategies Tax Management Taxable Ladders o Corporate o TIPS Municipal Ladders o National o State Focused/ Specific Banking FDIC CD Program Debit Card Online Bill Pay Checking Security- Backed Lines of Credit Insurance Premium Payment Program (IP3) Trusts Agent or Directed Trustee in 50 States Custody Trade Processing Systematic Withdrawals Tax Management Tax Reporting Advisor Fee System Portfolio Rebalancing Goals -Based Client Statements Advisor Reporting Advisor Website Downloading Capabilities o Albridge o Portfolio Center o Advent o Others On-line Performance Reporting Investor Website Dedicated Project Management Team Client Segmentation Develop a Project Plan Complete IPS & Proposals Complete all Account Open Paperwork Assist in End- Client Meetings Investment Advice, Planning, & Presentation Support Experienced Team of CFAs, CFPs, & CPAs. Customized Performance Analytics Ongoing Proposal Support On-Line Proposal Tool Custom Marketing Materials End-Investor- Approved Seminars Research Papers and Commentaries Quarterly Investment Reviews Coaching & Growth Programs Revenue Tip of the Month Program Market Positioning & Branding 36

19 SEI Advisor Network Positioning Your Practice for the Next Step Questions & Answers John Anderson Managing Director, Practice Management Solutions SEI Advisor Network Save Time. Build Revenues. Differentiate. 37 Appendix Disclosures This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only. Information provided by SEI Advisor Network, a strategic business unit of SEI Investments Company. The example worksheets shown are for illustration purposes only. Not meant to guarantee any specific result. Individual results may vary. For those SEI funds which employ the manager of manager structure, SEI Investments Management Corporation (SIMC) has the ultimate responsibility for the investment performance of the fund due to its responsibility to oversee the sub-advisers and recommend their hiring, termination and replacement. SIMC is a wholly owned subsidiary of SEI Investments Company. FOR FINANCIAL INTERMEDIARY USE ONLY. NOT FOR PUBLIC DISTRIBUTION