3 Questions to ask your 55-year-old IFA

At a recent and well attended financial services event, all attendees were asked if they had any firm plans to sell their business within the next five years. A staggering 30% said they were planning a sale.

1 in 3 IFA business owners may seem high, however, when you realise that the average age of a financial adviser is 56 (source), it’s actually of no surprise that a great number of them are currently planning their exit.

And why shouldn’t they, right?

The truth

True story – a retiring client of mine once told me that when they chose to change their financial advice relationship from their aging IFA (69) to me (38) because when they spoke to the IFA they weren’t sure who was retiring planning who. A statement I know another, younger, next-gen planner friend of mine has also heard from a client of theirs.

Another true story – I know of one IFA firm whose 55-year-old owner apparently attempted to sell his book of clients to a younger planner at a Christmas party, whilst several pints of lager into his roast turkey. By all accounts the younger planner chose not to pursue this path and instead left the firm to work somewhere a little more professional.

3 Questions to ask your 55-year-old IFA

So what?

Most IFA’s have been working for the past 20-30+ years, accumulated clients, and growing their invested ‘funds under management’, or FUM for short. And it’s this FUM that has great value if you’re looking to sell your business.

With the recent increased wave of defined benefit pension transfer activity, some of these IFA’s have also been actively signing up even new clients (like, and I quote, ‘hot cakes’), and with their clients sizable pension assets, with a view of getting their FUM to a level that would attract interested buyers.

And who are these interested buyers?

Consolidators. In the main. Large equity backed institutions, who will buy smaller IFA practices with a view of consolidating (or pooling) all client funds onto the same investment platform (i.e their own in-house platform), and then invest the clients money in the same range of investment funds (i.e their in-house funds). All carrying larger fees, so that they can recover the initial outlay to buy you as a client.

But what about the service Chris – surely it’ll remain the same or improve under this new firm?

Unlikely. In my humble opinion. A mass consolidation of clients. A large national firm. A focus on selling product. And a clear runway to recover acquisition costs so that their equity partners can achieve their successful financial exit.

Longhurst - Financial Spartan

Choosing your financial Spartan

A new prospective client was recently beauty parading me against other financial planners/advisers. A sensible decision which I highly endorsed. Interviewing several experts, to ensure they choose the most appropriate financial steward (or Spartan) for their family’s multi-generational wealth.

For this client, the other advisers being met were apparently in their 50’s.

To assist with his decision-making-process he asked my opinion on what additional questions he could ask these IFA’s regarding their future plans.  

Having thought it over, I provided him with 3 questions. To ask each question in turn. Letting the adviser respond. And knowing instantly if they were telling the truth.

The outcome of this process? I now have another new client. He was incredibly respectful and diplomatic with his feedback on the other advisers; but concluded that he trusted me and wanted to move forward together on a client/planner relationship, and with a hope that it would eventually turn into a trusted friendship.

The 3 questions

So what questions did he ask? Here they are:

  1. Are you planning to sell your business in the next 5-10 years? (simple, and obvious, but perfect)
  2. If no, what is your company’s internal legacy plan for the owners and senior management? (big clue = how many advisers under 40 do they have?)
  3. Finally, what assurances can you give me that I won’t be sold (like a commodity) to a consolidator firm?

Clearly these are just examples. You can ask any question you want. Trust your instincts.

If the IFA starts to ramble, or increase their rate of speech (or waffle), that’ll tell you all you need to know.

Summary

Ensuring you work with a financial planner (or adviser), who you trust has your best interests at heart, has to be your focus. It was 100% ours when we decided to publish this article.

Whether that person is 35, or 65, it doesn’t actually matter. But ensure you always have one eye on the future; both yours, and theirs.

Because the last thing you want to do it commit to a professional relationship that sees your trust sold like a commodity over a turkey supper.

Chris Broome

All initial discovery meetings are held at our expense.