Are We Still in a Seller's Market for Financial Practices?

Are we still in a seller's market for financial advisory practices? I am often asked this question and the answer is “yes” but qualified. The anticipated shift from seller’s to buyer’s market, brought about by the retirement of the baby boomer generation, is gradual and not a flip of a switch. We started experiencing the shift at the beginning of 2016, with the first signs being the number of interested parties for each sale declining.

This was more pronounced for lower quality practices and does not imply that there isn’t sufficient interest. What it does imply is that it will likely become more challenging over the coming years to receive premium offers and terms that favor the seller.

Moreover, it will become increasingly important that sellers enlist the help of M&A professionals for a successful outcome. There is an interesting twist here as well, it appears as though many advisors have delayed retirement, likely due to the strength of the stock market and lack of pain points that would motivate a major change like retirement. The reason this is significant is that it represents a pent up supply that could flow into the market given the right event, like a stock market correction. Ironically, it puts the practice equity of those same advisors at risk if they sell too late or based on that emotional decision (waiting to sell as the result of a stock market correction as a pain catalyst). The bottom line is that supply and demand will change over the next seven years and that the majority of advisors contemplating succession in that time frame will do better if they sell sooner than later.

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