Using Partial Client Acquisitions as a Succession Transition Tool

A Partial Client Acquisition (PCA) is when the buyer is acquiring a partial client list, typically less than 50% of the seller’s revenues or assets, rather than acquiring the entire practice.

Advisors will often use PCAs outside of a succession strategy in order to make more room and time for larger more profitable clients. Larger advisors will sometimes utilize a PCA to sell off the “bottom” portion of their book to advisors who are eager to affordably grow their client base. PCAs provide many benefits to both the buyer and seller, and can also provide an ideal path of least resistance for beginning and implementing succession transition strategies.

A Partial Client Acquisition (PCA) is when the buyer is acquiring a partial client list, typically less than 50% of the seller’s revenues or assets, rather than acquiring the entire practice.

Advisors will often use PCAs outside of a succession strategy in order to make more room and time for larger more profitable clients. Larger advisors will sometimes utilize a PCA to sell off the “bottom” portion of their book to advisors who are eager to affordably grow their client base. PCAs provide many benefits to both the buyer and seller, and can also provide an ideal path of least resistance for beginning and implementing succession transition strategies.

Sellers may choose to parcel out different client tranches to multiple advisor buyers or use as a way for their “anointed successor advisor” to begin a gradual acquisition and client transition process.

Structuring PCAs are flexible and are individually tailored according to the seller’s succession and retirement timeline.

Segment your client list into tranches in order that you would sell. The tranches do not have to be equally segmented. Most advisors will initially carve out their clients with the lowest assets as a tranche and then segment by client asset tiers.

An advisor with 100 clients and $100MM AUM for example may break out their clients into AUM per client segments like:

• Tranche #1: 30 clients $10MM AUM
• Tranche #2: 25 clients $15MM AUM
• Tranche #3: 20 clients $20MM AUM
• Tranche #4: 15 clients $15MM AUM
• Tranche #5: 10 clients $20MM AUM

PCAs can be structured to sell tranches to multiple advisors, sell a few tranches in the short term and maintain favorite clients for a much longer period of time, or more commonly to sell tranche #1, and then perhaps #2, to a single advisor, and if all goes well, then combine and sell the remaining tranches in a follow up 100% acquisition of the remaining clients.

Ideal Succession Transition Method
Many sellers aren’t ready to completely sell out and retire right now but would like to solidify who their successor advisor will be and start slowing down over the next few years. PCAs allow sellers with longer time windows to work with and the ability to prepare their successor advisor both financially and professionally through partial and incremental transition tranches.

On the other side, there are many advisors who have years of experience (rather than decades) who would benefit from acquiring a principal’s practice over time as well. PCAs allow the advisor to more easily afford or qualify for a loan than 100% ownership transfers and provides valuable client transition and retention experience needed for larger acquisitions later.

A Mutual Test Drive
A PCA provides both the seller and buyer with an initial acquisition test drive. If the client retention is high, the client relationships are strong, and there is synergy with buyer and client service model and general investment philosophy, then the PCA can be determined a success.

If the PCA isn’t considered a “success” then the PCA served as an insurance policy against both buyer and seller remorse. The PCA gives buyers and sellers a strong indication if both are the ideal match for future client transitions with each other. If not, then the PCA allowed for the buyer, seller, or both, to look at other opportunities.

The PCA provides experience to the inexperienced. Both the buyer and seller are able to judge from the initial PCA experience if future PCAs, or acquiring the rest of the practice, is a prudent continuation of succession transition. If not, then any “remorse” is limited to just the partial client list sold and not the entirety of the practice.

Provides Experience for the Inexperienced
There is no other way to better prepare for a 100% acquisition then going through the experience of a PCA first. This applies to both buyers and sellers. Like many other aspects of the financial services industry, business in general and in life, there is no better teacher than experience.

PCAs can be utilized as “trial runs” for bigger PCAs down the line or to acquire the rest of the practice. The transition process, client transition meetings and procedures, time allocation, and retention best practices can be learned and lessons addressed to be applied to future acquisitions from both the buyer and seller perspectives.

Achieve Foresight from Hindsight
Hindsight has 20/20 vision as the saying goes. Use the perspective and experience from an initial PCA to provide the foresight in how to structure the continuation of the succession or to go in a different direction if the PCA wasn’t considered successful.

PCAs gives the seller the opportunity to examine the results of an initial PCA to determine if the buyer has proven themselves worthy of additional PCAs or a full acquisition. It also provides the buyer with the opportunity to determine if acquiring more of the same would be a dream or a nightmare. The 20/20 hindsight gives buyers and sellers the opportunity to recalibrate structure and improve the transition process moving forward.

Partial Client Acquisition Loans
For information on the lending benefits of partial client acquisitions see AdvisorLoans Insights article:  The Easiest Acquisition Loan is a Partial Client Acquisition