Seller’s market for advisor books of business persists as many still put off retirement

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Despite high borrowing costs and an aging cohort of advisors, the market for advisors’ books of business remains tilted in favour of sellers.
George Hartman, president and chief executive officer of Market Logics Inc. in Toronto, says the value of a book of business has more or less held steady for the past six years.
Mr. Hartman says it’s a simple case of supply and demand: “I would say I get 40 times the number of people looking to buy a book than I do looking to sell.”
Brett Evans, a partner at Capital Markets Advisors LLC in Toronto, says wealth management firms focused on expansion are contributing to the seller’s market.
“You have lots of firms looking to acquire and grow, and I think things are going to heat up,” he says.
“It’s not only the big banks, but the independent firms and boutiques that are encouraging their advisors to expand their assets by buying books,” he adds.
Having a larger practice has become more important, Mr. Hartman says, as dealers download costs onto advisors. “The advisors need larger practices to retain profitability.”
Jeff Gans, president and chief executive officer of Advisor Solutions by Purpose in Toronto, says financing has also become easier for advisors looking to purchase books of business.
“There are more institutions familiar with how advisors run [their businesses] and are open to financing those large purchases,” he says.
One of those institutions is Richmond Hill, Ont.,-based CWB Maxium Financial, which has a department that specializes in acquisition and succession for financial advisors.
Pierre Sauvé, director of originations at CWB Maxium Financial, says the market for financing a book or share acquisitions has increased rapidly since the company entered the market almost 10 years ago.
“We recognize the value of an advisor’s practice derives from the predictable revenue generated by their book of business, rather than the assets the business owns,” he says.
The common three-year timeline for buying a book of business can make it difficult for some younger advisors to use book acquisition as a way to grow their assets. But Mr. Gans says the trend toward flexibility in financing has helped more advisors see book acquisition as an option.
According to Toronto-based research firm Investor Economics, an ISS Market Intelligence business, the average age of advisors working at full-service brokerages is 52. However, Mr. Evans says the average age of advisors managing the largest number of assets is likely closer to 62.
“People always said there would be a great exodus of advisors, but many have passed retirement age and have stayed in the business,” Mr. Gans says.
The sluggish exit of aging advisors adds to the current market favouring sellers. According to Mr. Evans, firms are working to attract new talent, but advisors aren’t giving up the reins, adding to the supply and demand issue driving the seller’s market.
Mr. Evans has worked with young advisors, or associates, in his own practice who are promised books or clients within a certain timeframe but end up frustrated when the advisor doesn’t retire.
“Into their sixth or seventh year, they’re calling us, looking to purchase a book of their own, because they realize the person isn’t going anywhere. They’re doing the heavy lifting without getting the financial reward from the book,” Mr. Evans says.
Most buyers simply can’t find a book to purchase or can’t afford the ones on the market, which have values that have been inflated due to demand, Mr. Hartman says. While he doesn’t foresee a wholesale shift from a seller’s market to a buyer’s for at least the next five years, he says that as more advisors begin to retire, the value of books and the amount a typical advisor can pay will begin to level out.
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