NFP Advisor Services Group Publishes Aite Study on Maximizing Practice Value and Succession Planning Best Practices for Financial Advisors

NEW YORK, May 15, 2012 /PRNewswire/ -- NFP Advisor Services Group, which offers broker-dealer and asset management products and services to financial advisors and is a business segment of National Financial Partners Corp. (NYSE: NFP), a leading provider of benefits, insurance and wealth management services, today published the results of a study identifying steps financial advisors can take to maximize the value of their practice across various time horizons in advance of succession. 

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James Poer, President of NFP Advisor Services Group, said, "It is no secret that succession planning is an important aspect of the wealth management industry, particularly at a time when one in ten financial advisors is over 60 years old.  Just as advisors utilize the efficient frontier to help maximize investment outcomes for their clients by optimizing the balance of risk and return to fit a client's time horizon, it is critical that they apply similar thinking to help maximize the results of their own eventual practice succession."

The study, commissioned by NFP Advisor Services Group and produced by leading independent research firm Aite Group, reveals that nearly 70% of practice owners believe a successful transition will take five years or less to implement from the time a succession strategy is selected to the time they can leave the practice, whereas M&A consultants suggest starting to prepare for succession ten years before the planned transition, primarily to maximize practice value.

Understanding that many advisors do not have a full ten years to plan for practice succession, the study suggests three actionable steps financial advisors can take to improve the value of their practices and approach succession planning in the most effective way possible:

• Advisors with 3+ years until practice transition can influence practice valuation. When valuing their practice, advisors typically think in terms of revenue or assets under management, and often turn a blind eye to expense management.  Practice buyers and M&A firms, however, use normalized earnings to value a practice based on its profitability.  If addressed early enough, many components that drive practice valuation can be influenced in advance of a succession event.  For example, if the weak point of a practice is its technology and operating model, a migration to different infrastructure or to an outsourced technology platform could be considered.  If an aging client base is the issue, a concerted effort to win younger clients will improve the value of the practice. 
• Advisors with less than 3 years until practice transition should focus on mitigating existing risks. The focus of the last three years before a transition is enacted should address existing risks, such as employee retention post-transition and having a practice valuation completed by a qualified consultant. There is also time to implement streamlined technology that will be turn-key for the buyer.  At that point, much attention should be on tactical measures for implementing the chosen succession strategy.
• It is imperative that advisors focus on client retention, regardless of where they may be in the succession planning process.  Client retention is the top challenge for 22% of advisors that acquired an existing practice, well ahead of the financial side of transactions, like obtaining deal financing.  Accordingly, practice owners should aim for a client retention rate of 90% or higher by focusing on client satisfaction both before and after the succession event, with a strategy in place that provides clients continuity relative to investment management, account access, reporting, product selection and communications.                  

The study also reveals that, while a staggering 40% of practice owners anticipate a succession event within the next 10 years, only one-third of all practice owners have a succession plan in place.  Moreover, among the two-thirds of practice owners that do not have a succession plan in place, 54% do not know the value of their practice. 

Poer concluded, "Advisors that plan ahead and focus on enhancing the value of their practice today – with an emphasis on driving revenue up and keeping costs down – will be best positioned to optimize the trade-off between risk and return to achieve the best possible outcome when they are ready to enact the succession processes they have in place."

View the complete results of the study here www.nfpasg.com/practicevalue.

About the Study

Aite Group's independent study – The Efficient Frontier of Succession: Maximizing Practice Value – is based on the results of a March 2012 poll of 227 practice owners and interviews with leading buyers of advisor practices, brokers of practice sales, and consultants in the financial advisor marketplace. The data from practice owners has a 6-point margin of error at the 95% confidence level.

About NFP Advisor Services Group

NFP Advisor Services Group, a business segment of NFP, serves independent financial advisors whose clients include high net worth individuals and companies by offering broker-dealer and asset management products and services through NFP subsidiaries, NFP Securities, Inc., member FINRA/SIPC, and NFP IndeSuite, Inc. NFP Advisor Services Group attracts financial advisors seeking to provide clients with sophisticated resources and an open choice of products.

About NFP

National Financial Partners Corp. (NYSE: NFP), and its benefits, insurance and wealth management businesses provide diversified advisory and brokerage services to companies and high net worth individuals, partnering with them to preserve their assets and prosper over the long term. NFP advisors provide innovative and comprehensive solutions, backed by NFP's national scale and resources. NFP operates in three business segments. The Corporate Client Group provides corporate and executive benefits, retirement plans and property and casualty insurance. The Individual Client Group includes retail and wholesale life insurance brokerage and wealth management advisory services. The Advisor Services Group serves independent financial advisors by offering broker-dealer and asset management products and services. Most recently NFP was ranked as the eighth Top Global Insurance Broker by Best's Review; operated the fourth largest Executive Benefits Provider of nonqualified deferred compensation plans administered for recordkeeping clients as ranked by PlanSponsor; operated a top ten Independent Broker Dealer as ranked by Financial Planning and Financial Advisor; had three advisors ranked in Barron's Top 100 Independent Financial Advisors and is a leading independent life insurance distributor according to many top-tier carriers. For more information, visit www.nfp.com.

About Aite

Aite Group is an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, securities & investments, and insurance, Aite Group's analysts deliver comprehensive, actionable advice to key market participants in financial services. Headquartered in Boston with a presence in Chicago, New York, San Francisco, London, and Milan, Aite Group works with its clients as a partner, advisor, and catalyst, challenging their basic assumptions and ensuring they remain at the forefront of industry trends.

SOURCE NFP Advisor Services Group