Podcast: How to Navigate the Emotional Side of Selling a Financial Advisory Firm

Kara Miller, Director of Banking and M&A Services at SkyView Partners helps financial advisors and owners of RIA firms manage the process of selling their business. She also helps them work through the emotional rollercoaster that tends to come with selling a business one has spent decades building.

To listen to the episode simply click play on the audio stream below or listen and subscribe on your favorite podcast platform. You can find The Advisor Financing Forum on Apple PodcastsSpotify, and Stitcher.

Transcript

Mike:

Welcome to the Advisor Financing Forum, a weekly podcast presented by SkyView Partners. My name is Mike Langford, and this week I'm joined by Kara Miller, the director of banking and M&A services at SkyView for an in depth exploration of advisors and RIA firms who are on the sell side of the mergers and acquisitions equation. What I think you're going to love about this conversation with Kara is her deep understanding of the human element of these transactions. Kara has spent her entire career studying human behavior, and while she's not a psychologist, her experience guiding advisors over the years has honed her skill at helping sellers through the emotional process of selling a business, while also helping with the actual process itself. Now before we jump in, if you have questions or suggestions for the podcast or the SkyView team, feel free to reach out to podcasts@skyview.com, or you can hit us up on your favorite social channel.

Mike:

SkyView is active on LinkedIn, Facebook, Twitter, and Instagram. Give them a follow and they'll follow you back. Also, please be sure to like and subscribe to the podcast on Apple Podcast, Spotify, Stitcher, Google. And if you could, tell a friend about the show. If you're enjoying it, chances are they will too, and they'll appreciate you turning them onto some cool stuff. Okay. Let's get to the show with Kara Miller.

Mike:

Well Kara, I am so wonderfully excited to have you on this show, we had a couple conversations prior to this. And even before we started talking, I get to see you in my social feed and so forth. And it was one of those things where I was delighted to finally get to talk to you in person. So welcome to the podcast.

Kara:

Well, thank you. Likewise. I've been listening to your podcast for quite a while now, so I'm excited to be here.

Mike:

This is going to be a blast. You and I had just such a great conversation last week, and I just feel like we're just going to keep flowing today. I wanted to start with your journey to SkyView Partners, because you have a really interesting story that began in the CPG, or for those who don't know, consumer packaged goods space. You learned some really insightful things about human behavior that have really served you well in working with financial advisors today.

Kara:

I did. My first job out of college was actually at Piper Jaffray in the advertising department, and that was pretty short lived. And then I moved to a consumer packaged goods firm that tracked and provided competitive business intelligence to CPG companies on the brand level. So we had a laundry detergent report and we would sell it to Cheer and Tide. And a toothpaste report and we sell it to Crest and Colgate. And we also did focus groups. So during the focus group part of my experience, I learned how to really listen to what people are saying. To sit at a table in front of 12 people and get them to talk about what they thought and what their priorities were, and get past the initial things that they thought they should say, that they felt compelled to say. And really dig into what was under the surface that they were aware of, or maybe weren't yet aware of.

Mike:

That's really fascinating because there's so much going on when you think about how a consumer, and in the case of SkyView Partners, your consumers are financial advisors and owners of RIA firms. We often detach the human emotion when we think about business. We think, oh, it's a business. And this business person is selling to another business person. Or this business needs money to grow, whatever, and they're coming to SkyView to get that money. But there's humans behind the curtain, if you will. Right? And they have emotions and feelings, and hopes and fears and all that stuff.

Kara:

They do. And I love working with this particular sector of humanity. Financial advisors, they all, 90% of them at least, have the ability to turn on quite a bit of charm. And they're relationship masters. And they can be really pleasant and easy to work with. Most of them are pretty solid communicators, they're also analytical and finance oriented. But at their heart, they're very relationship oriented, and that makes for a really interesting interaction.

Mike:

Now your role at SkyView is to primarily, and correct me if I'm wrong in this, but primarily to work with sellers, right? People who are to sell their business. And you described it to me as, I help advisors through their fears and trepidations. Right? Because selling a business that you've spent decades of your life building, frankly, can't be easy if you've come to that decision, right? It's especially true for financial advisors. They develop deep connections with their clients, and oftentimes the children of their clients. It's like turning the keys over to someone else to watch over your family. Talk a little bit about your role there, and what's that day-to-day like?

Kara:

Sure. Well, I've been working with sellers for a while. I started working with one of the managing directors, one of the managing partners, Erin Hassler about, I don't know, eight or nine years ago. Originating seller deals. And it's a particular type of advisor who is open to a succession plan and eventually selling their practice. And you're right, it's a sensitive, emotional business transaction that has to be based in math, but the advisor has to be emotionally ready for it.

Mike:

That makes sense. It's funny, I mean, I've never had to exit a business that I've spent decades building. But I really do try to imagine if in many of these cases... I was an advisor at one point in time, and one of my clients, and it was soon to be a client actually, I was in the process of winning the business. And he looked at me and said, "You're a marital compromise."

Mike:

And it was really interesting. And it was at that point in time when I realized, for many of the advisors, they're as much marriage counselors and relationship managers, not just for managing their relationship with the client but helping the clients manage relationships between each other, as anything else. So that emotional connection has just got to be so, so strong.

Kara:

It is. And when they become a seller, we become the relationship counselor for that, between the advisor's identity and their business. So they will come to us and say, "Here's my objective. I want to sell my business and this is why." And a lot of times they'll start with, "Well I really want to make sure my clients are taken care of." And I think sometimes they feel they need to say that. But when you dig in deeper to it, there are other issues at play that really either worry them or concern them, or that they just haven't quite figured out yet. Like a change of broker dealer, or working under somebody else's brand name. Or, if they reduce their hours, what are they going to do the rest of the day?

Kara:

And will they still have a place to go every morning? And sometimes there's trouble letting go of some of their favorite client relationships. Sometimes they're happy to let go of the bottom half of their book, or the small accounts, or the accounts that are just high maintenance. But they're really emotionally attached to their daily life, their routine, and the joy they get from serving and helping their clients.

Mike:

Yeah. I love that you mentioned also that fear of, what am I going to do all day? And I think that's probably true for a lot of people when it comes to retirement, right? Or exiting anything. And at some point in time you're letting go and you got to figure out, what are you going to do next? You mentioned that many advisors are choosing to retire in place. And what I found fascinating about that was, there is a an overwhelming prediction in the industry, based on what I'm seeing, that there's going to be this massive wave of advisor retirements in the next decade. Yet in your experience, you've seen that many advisors decide to retire in place. Why is that? What separates the advisors who sell from those who decide, you know what, I'm just going to stick with it and ride it out?

Kara:

Yeah. I think there's a couple of factors. And I've heard this, as a foundation for it, I've heard this statistic thrown around that the age of the average advisor right now is 58. And that 20% of all advisors are over the age of 62, or something like that. And some of these advisors, they haven't saved otherwise for retirement and they want the liquidity event of selling their business. So that's one motivation to move forward. But others are, their margins are healthy. They make a lot of money by just working a couple hours a day. And they just don't see the need to sell their business and give up that revenue stream. Unfortunately, I think their clients can suffer for it because they're not, when the market crashes, they're not working 10 hour days to make sure everybody gets whole again. They're just keeping it floating.

Kara:

And I don't know, they're skating along. They're doing the minimum, and I think it's hard sometime for a client to know, is my advisor really performing for me, or not? And then these guys that want to keep on working, their business gets smaller and smaller every year starting at about age 62 or 64, because their clients get older. They go into distribution mode and they stop creating relationships with the second and third generation, they stop gathering new assets, they stop marketing. Just because they want to reduce their hours, have a little bit more free time, maybe take longer vacations. Maybe they have a hobby or they play more golf. But their businesses get smaller and smaller until some of them, they just let them disappear into the ether. And they're fine with it.

Kara:

So there is two types of advisors, one that's going to have a succession plan and execute it. And that might mean making a partial or a full sale of their business, having a liquidity event. But continuing to go into the office every day and earning some kind of a consulting fee, or having some sort of a percentage of production go into their pocket. Versus the advisor who wants to maintain 100% control, even if the business declines every year. Even if they have fewer and fewer resources. And it's just an odd choice that's hard to predict. But we find that if advisors don't pull the trigger on a plan by the time they're 75 or so, that they aren't likely to ever do it.

Mike:

I like that you really covered the nuance there. It's not an all or nothing proposition for an advisor. And I think oftentimes there is that thought that, I either sell this business or I don't, and I just keep working forever. And as you say, let the business gradually decay. And that is fraught with some ethical issues, frankly. That if you are not going to give your clients the attention that they deserve and that they expect, and that they need for their lives. I mean, they're coming to you. They're entrusting you to help guide them for the future of their lives, their children's lives and so forth.

Mike:

If you're not going to do that to the best of your ability, you owe it to them to gradually wind down, or find a successor that will gradually take the business off. And so it's not a, hey, today I stop working type of thing. Maybe it is gradually moving out. And that actually solves one of the other things that you mentioned, right? The many advisers, and this would probably shock many consumers, financial consumers. But many financial advisors aren't sitting there on the millions you'd expect them to be sitting on after working in the business for 30 years.

Kara:

Right? Yes. Right.

Mike:

And that's not meant to be a slight or a critique of financial advisers. Look, they're humans just like everybody else. Oftentimes, they spend what they make and they assume they're going to continue to make that forever. And life gets in the way and they look up and they haven't put away as much as they wanted to. It's like the mechanic who doesn't drive the nicest car, if you will.

Kara:

Yeah. And I think like many entrepreneurs, they're investing time and money in their businesses through their career. And if they have an option to cash it all in, and if they don't want to do that, then they're relying on their monthly or annual income in order to fund their semi-retirement.

Mike:

It dawned on me as we were in post production for this episode, that you might be wondering why a seller would need to reach out to SkyView. I mean, if you're selling your business, what do you need financing for? First, stick with this episode, because Kara is going to share a few scenarios in which the seller isn't just selling a business and walking off into the sunset. In many cases, you might want to sell a portion of the business, which means you're staying onboard. In other cases, you might want to have the business finance an M&A scenario in which the newly acquired business will buy you out over time.

Mike:

There are dozens of possible scenarios. At a minimum, it's a really good idea to be up to date on the financing details, and stay involved through the process. If you're considering selling or buying a business, make sure you reach to the SkyView team by visiting skyview.com and clicking that "get started" button on the home screen. Or, call (866) 567-6282. Or if email is your jam, shoot a note to info@skyview.com and someone from the team will get back to you pronto. Okay. Now, back to Kara.

Kara:

But advisers right now have more options, I think, than they ever have to craft a creative retirement, or retire in place transition. Banks who finance the succession plans like the seller to stay involved in the business for a couple of years, it makes them comfortable that the assets are going to transfer smoothly and stick. But it gives the retiring advisor an opportunity to ease their user involvement with their clients in a downward fashion, so they can start handing clients off to the buyer. They can focus more on their favorite clients. If they, for some reason, want to take longer vacations, they can do that and somebody is going to keep the farm running. If they have a hobby, they can just work shorter days. But they can focus their activities on things they like to do.

Kara:

I'm working with a seller right now who says that over the last 10 years he's rejected or had to turn away two-thirds of the business that was referred to him. And what he'd really like to do after this transaction is executed, is gather new assets. He thinks he's really good at that. And he would like to just bring in new clients and have somebody else service them in the long term. And he won't have to deal with the compliance and the general accounting, or the human resource problems anymore. And he'll be able to position himself in a way that he's very fulfilled.

Mike:

That's really interesting because, and you and I have talked about this before, that many of these advisors that are of the age in which we would expect them to be retiring, got their start when they were still called stockbrokers. Right? And that's what their job was back then. They were going to call a client, they managed a book of clients that they would call. And they would tell that client, hey, listen, here's an opportunity for you to buy and invest in this company or this mutual fund, or whatever that is. And that's how the process went. So they effectively were going out there and bringing on assets. And they weren't necessarily managing financial plans. They weren't having to have these quarterly meetings and so forth. The financial advisor, as we know it, has gradually came into being over the last 20 to 25 years or so. So many of these advisors were there before that. And so I could actually see that being something that an advisor would enjoy doing at the end of his or her career.

Kara:

Yeah. It's surprising how many want to do that. The other common objective that I hear is, "I only want to work with my favorite clients." That type of advisor wants to focus on deep relationships that bring them enjoyment. And I talked to another advisor who said, "What I want to do is I just want to run the business. I'm a good business manager. I'm interested in building the infrastructure, but I don't want to deal with financial plans anymore. They bore me. And I want to be done with that part of my career." So it can go in any of a thousand different ways, and it really can be adapted to, number one, hit the advisers strong spots, and be lucrative. It doesn't mean [crosstalk 00:18:48]...

Kara:

It doesn't mean the end of earning an income. So on top of selling the business, they still have an income opportunity.

Mike:

What's really interesting about that is I'm reminded of a podcast I did not too long ago. And I interviewed somebody and he was talking about that very concept of, many advisers, they continue to operate their business basically as solopreneurs. Right? They're sole practitioners. And they really never got the opportunity, or took the opportunity, to transition into business owner. And a business owner, you do delegate different tasks down to different types of people. So for instance, that advisor you mentioned, hey, I like running the business, but I don't want to have to be the advisor who is working on the financial plans, sitting across the table from the clients and doing all the other stuff that comes along with being in the business. I want to run the business. And that actually could be another transition point for somebody towards the end of their career.

Mike:

Maybe that's the way they want to do it. And frankly, SkyView provides that type of opportunity because advisors can actually take some cash out of the business, or refinance the business. Right? They can take some money off the table, have some liquidity, but still maintain ownership of the business. They didn't sell it, they just borrowed some money against the cashflow of the business, or they can take some money and reinvest it in the business, hire some advisors, and elevate themselves to that owner, that operator status. So that's really a lot of options available to advisors today.

Kara:

Exactly. And on that owner operator model, they have choices even beyond that. We can help them transition to a structure that's similar to where they're coming from, which might be a team or a collection of advisors who each have a siloed, separated book of business, but share a strong suite of resources. Or, we can help these advisors move to an ensemble practice where they might sell part of their business for equity shares in the new firm. And in those situations, all the advisors work on all the business. It's a very team oriented approach, which allows for more specialized job descriptions. Everybody can have a specialty, an area of expertise. And they don't have to worry that, because they're not doing everything for a particular client that it's going undone. They're quite supported and they can really pick and choose what they want to work on.

Mike:

That's amazing. That's really good. Really good. I love that advisors have these types of options now, because it just really wasn't the case. Again, because in part, this business is relatively new, right? I love the fact that they have options. Let's shift gears to something that's made me laugh and left one of those psychological marks on you. And we'll title this segment, how many Doritos did you actually eat? I wonder if you're willing to retell a story you shared with me about the study you conducted in which you asked participants, how many Doritos did you actually eat? What did you learn [crosstalk 00:22:06] about human behavior from that type of experience? And how are you using that to help advisors today?

Kara:

Well, I will go back a little bit in time. At the beginning of my career I led focus groups, where I would sit at a table in front of 12 consumers who had tried a particular product. Whether it was a cleaning product, or a laundry detergent, or muffins, or one of them was Doritos. And get them to talk about how they really felt about it. So with the Doritos, I remember specifically it was a version of Doritos that was in a test market, and that it had extra flavoring powder on the chips. And one of the questions we needed to get answers to was, how many Doritos did you eat? Because the serving size on the bag says nine chips is one serving, but how many did you eat? And everybody starts off by saying, "Oh, I just ate a few Doritos. I just ate a couple."

Kara:

And then somebody will be very self-deprecatingly say, "I ate three servings." And if you can make everybody feel comfortable enough, and not judged, and feel like what they have to say is worthwhile and valuable and contains insight, by the end of the conversation there's a few people who will say, "Well, I polished off the whole bag while I watched TV." And it's just very interesting. And I did that with Doritos and muffins. And cleaning products were interesting too, because somebody would say, "Oh, and I hadn't cleaned my bathroom in three months, but this really made the tile shine." It was a good lesson in how to let a conversation develop slowly. How to make people feel like they weren't being led to give a pre-scripted answer. That they can say whatever was on their mind. And sometimes they don't know what's on their mind and you have to help them compute their conclusion. But it was a great lesson in listening, and encouraging people to express themselves and making space for whatever answer they were going to come up with. No matter how surprising it was.

Mike:

That's a really good one. I love that. By the way, if some of the listeners are like me, I'm a bit of a food lemming. So it's really, really difficult for me to see a food or hear about a food and not find myself craving the food. So I highly predict that there will be, maybe not Doritos, but some form of tortilla chip in my near term future. I mean, I do live in Austin, Texas, and chips are a way of life with some chips and guac. It'll be good.

Kara:

Right, right. And now it's on your mind, right?

Mike:

That's right. Mark it down, it's happening. This is great. How does an advisor, or an RIA firm, get to work with you particularly, or individually? Is there a process that they have to go through to gain access to your consulting experience?

Kara:

Well, they have to be willing to move forward. So we've talked to a lot of sellers who are... We talk to buyers and sellers. In order to work with us if you're a buyer, we ask that the advisor have an account on the Advisory Practice Board of Exchange website. Fill out a practice profile and submit some documentation to back up that they are who they say they are. And then we're open to consulting with them. And our objective is that once they get an acquisition opportunity in front of them, that they would remember SkyView when it comes time to finance the deal. And for sellers, it's a little different. I talk to a lot of sellers that people refer me to saying, this person is of the right age. And I heard that he might be actually thinking of selling, or I heard that he's got a buy-sell agreement that he's not happy with and he wants to make some changes and put a plan in place.

Kara:

And that's a very slow, gradual way to develop a relationship. But that's how most of them happen. A few advisors will call and say, "I'm ready to sell." We list them on the advisory practice board of exchange. We make some introductions to buyers, help them do due diligence, help them make a final selection, structure the deal, and provide financing for the buyer. But in most cases, a seller will be referred to me, and we'll just start talking about their objectives. And if their objectives are conventional, we can probably work together. And by that, I mean, are they asking a reasonable price? Is their price based on a cashflow analysis?

Kara:

Or did they just choose a multiple out of a hat? Multiples are rising. But if an advisor says, "Well, I want five times revenue for my business. And that's what I'm sticking to." Sometimes that works and sometimes it doesn't. But we just want to make sure that an advisor will go forward with the deal. That they're interested in actually having a succession plan, that they're not just floating around to see, I wonder how much I could get for my business. But that they've got some sort of an objective in mind for the transaction.

Kara:

Either they want a partial sale, or a [tronge 00:27:41] sale, a full sale. Another opportunity that we can provide is called a move and acquire, which we'll find a mid-career, established, experienced advisor with a book of business to move to their firm and operate under their brand name. And the incentive for that mid-career advisor, is the immediate opportunity to buy some assets. So it might be 50 million assets, 50 million AUM is on the table as a carrot. And we find, using the Advisory Practice Board of Exchange, we find some advisors that are willing to move for that opportunity and go through that process of introductions and due diligence, and all of that in order to find a good match.

Mike:

I like that, because that's a more ... call it a more mature, due to the maturity of the advisor who would be moving and joining. Because very often you hear an older advisor is thinking of retiring at some point in time. So they hire a junior advisor and they start to groom that person almost as an apprentice over years. And then eventually turn the keys over to them. This is a scenario where it's, I think probably much less risky, right? You're bringing somebody in who has a proven track record that they know what they're doing. You vet them and you bring them into the business, and you gradually transition over time. So you're not having to do all the handholding of training an adviser with all the baby steps along the way.

Kara:

Right, right. The earlier you bring an advisor into your business, earlier in their career, the more risk there is. I mean, there's a lot of advisors who are in the business for a year or two or three, or maybe five, and then just decide it's not for them. So bringing in a mid-career established advisor cuts that out, cuts off that risk. The other problem in our industry, Mike, is that there's a... I hear a lot that a mid-career advisor will say, or an early career advisor will say, "I met so and so on the golf course. Kind of had a handshake deal that I would join his firm, and some day I would be his successor. But it just hasn't materialized." Or, "He's 85 and he's still not ready to hand it over." Or, "Everything was going great, and then his son joined the business and I'm knocked down a peg, and I'm not in line for it anymore."

Kara:

So there are a lot of failed handshake deals and implied promises that were never delivered on by offering up a part of the business for sale in exchange for moving into the firm that creates a lot more certainty for both sides. You get really a higher quality of advisor moving into the business, because it's really hard to find these acquisition opportunities. And a lot of advisors say to me, "I wasn't thinking of changing firms, but I would do it if I could acquire 50 million in assets." Or, "I've been wanting to change broker dealers for a while. Well, I'm all open to it." Or, "I've always wanted to go RIA and I just hadn't done it yet. That looks like a great opportunity for me."

Kara:

So there are a lot of mid-career established advisors who will move for the opportunity to make a beginner acquisition like this. And they know that if they buy the first 50 million in assets from an advisor who is of retirement age, that they're well in line to buy the next 50 million, or the rest of the business. And it's a great situation for both sides. The seller doesn't have to give up their brand. They get to maintain some control in running the business. But you get to mid-career advisor who comes in, and he's coming in with some certainty, not just a handshake that he hope will be fulfilled.

Mike:

It's like if you're a sports fan, it's like bringing on a free agent who's already established themselves in the league. Right? Versus, hoping that you drafted the right guy. Right? It's kind of the way I think about it. That's really interesting, and I had never given that much consideration, but I think it is a really smart move. As far as sellers go, as we get close to wrapping it up here. Are there certain things a seller should do in order to prepare the business and prepare themselves to be seen as a viable seller, as an attractive business that somebody may want to acquire? If they're thinking about selling their business.

Kara:

That's an interesting question, because it's a sellers market, almost any seller's business is going to get a lot of attention. The more fee-based their revenue is, the higher the multiple they'll get. But I would say that there are a couple of things a seller can do to kick off the process in a smooth fashion. I had an experience recently with a seller who came to the table, came to the first conversation and said, "I created this 10 page document on my objectives for this transaction." That was really valuable. I got to read that a couple of times before even making any introductions to buyers to him.

Kara:

When he identified the buyers that we presented to him, that he was interested in engaging with, we have those buyers read this document. And it clarified a lot of questions right out of the gate. So I would offer up that as an idea for sellers who are moving forward. Another good thing for a seller to do ahead of time, or at the beginning of the process, is to get a valuation, a third party valuation from Truelytics, or your legacy partners, or just some third party that specializes in valuing financial advisory practices. And the third thing is just to start thinking about what they want their role, after the transaction executes, to look like. Because [crosstalk 00:34:07] it can look however they want.

Mike:

Yeah. It's interesting that you mentioned that, it's goes back to one of the things you said at the beginning of the podcast. Right? That, think about what life is going to be like after this transaction, and start to think about what you might want to do. What can't you do right now that you would be able to do if you sold the business? And if some of it can be business related, like how might your career, your work life, look a little different, and how might it be better? And then some of it might be, how much of your personal life, will you be able to travel more? Will you be able to play more golf, if that's your jam?

Kara:

Right, right.

Mike:

Well, that's awesome. Well, Kara, this has been a really enlightening conversation for me. I learned a ton today. And it's funny, when we do these podcasts, I always go create some notes just to guide us, as you know. And you and I are sharing a document right now. But I'm always pleasantly surprised by the things that pop up. And some of these conversation topics here were new to me. And I'm just delighted that they came up. So thank you very much for teaching me some new stuff today.

Kara:

Thanks, I enjoyed speaking with you.

Mike:

This is wonderful. All right. You have a good day now.

Kara:

You too.

Mike:

Thank you so much for listening to this episode of the podcast. And if you like to subscribe to the show on your favorite podcasting platform, you get a virtual fist bump from me. Bang. Also, huge thanks to Kara Miller, such a joy to have her on the show.

Mike:

You ever have that time where you connect with someone on LinkedIn, or some other social network, or you've only ever had an interaction with them via email. But you have some idea that you might really like that person if you ever got the chance to meet them. Well, Kara is every bit as amazing as I imagine she would be, and more. I can't wait to actually meet her in person after this pandemic clears. But listen, don't take my word for it about how awesome Kara is. Reach out to SkyView yourself, and you'll see. Swing by skyview.com, or give them a ring at (866) 567-6282, and say, "I heard Kara Miller on the Advisor Financing Forum podcast with Mike Langford. And I would love to explore working with you guys." It's that easy.

Mike:

Okay. As always, please stay safe and healthy. Make sure you're wearing your mask and keeping your distance. I know it feels like this is lasting forever, but we'll get through this if we all just work together. We're stronger together. So be nice to each other, okay? We'll see you next week on the Advisor Financing Forum podcast. Have a good one. See you. Bye.

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