So you want to buy another advisor’s practice, with Lloyd Sprague

Shaun Tucker

Hello, and welcome to the PracticeLab podcast, where we talk to top advisors about what makes them successful so that you can apply those lessons in your business. I’m Shaun Tucker, the Director of Practice Management here at Capital Group.

Are you considering buying another advisor’s book or selling your own?

Lloyd Sprague is an advisor at True Wealth Advisors with LPL in Colorado. Since joining True Wealth in 2017, he’s acquired seven other practices. He recently talked with my colleague Winston Chang about what he’s learned about finding a book that makes sense for you to buy, engaging with a selling advisor, transitioning new clients over and even positioning your own practice for acquisition.

So what valuations is Sprague seeing, and why are they so much lower than you might expect? Why does he ask every selling advisor to become a client? And why does he send Thanksgiving cards instead of Christmas cards?

Let’s listen in and find out.

Winston Chang

Hey Lloyd, thanks so much for joining us on the PracticeLab podcast. Really excited to explore this angle of client acquisition via inorganic growth with you. It's not one that we've explored too much. We talk a lot about organic growth and help advisors on that front, but you've got a really unique story and and your even career, your background, how you became an advisor, is really interesting, and something I'm excited to delve into. So thank you for joining us today.

Lloyd Sprague

Thank you so much, Winston. I'm happy to be here.

Winston Chang

So Lloyd, why don't you start us off with just an intro to yourself. Tell us a little bit about True Wealth, tell us a little bit about your journey as an advisor.

Lloyd Sprague

Sure. So I was a wholesaler and manager for 20 years, and we had young children, and my family and I decided that I needed to do something that wasn't on the road, and I'd read an article a dozen years or so for investment advisor magazine that said this huge wave of retirees and the financial services and if I think it was 40 or 42% of advisors were going to retire in the next 15 years. So I thought that this might be a good way to make the switch from the wholesale distribution to the retail and that's when I began to do the research to see what it would take to become, at least scale wise, a successful advisor.

I joined True Wealth about seven years ago. I had interviewed a number of different firms and really honed in on the independents, the larger independents, because they had the most advisors, because it is a numbers game. And at the time, LPL had about 560 advisors in Colorado and the average age was in the 60-year-old range. So I felt that that was going to be pretty deep pool to look for acquisitions.

Winston Chang

You’ve made a few acquisitions since joining True Wealth. How many and tell us a little about those.

Lloyd Sprague

So I've acquired seven practices in the last seven years, and our team has acquired 20. The first two happened very quickly. I had someone who wanted to leave the business with about 10 million dollars and another one right after wanted to leave pretty quickly, they were just wanting to exit the business and move on to family and the next stage of life. So the out of the seven, the smallest one was 4 million, and the largest one was 100 million.

Winston Chang

Thanks Lloyd. I want to spend some time talking about your inorganic growth strategy and what our listeners can learn from it. What would you say were the biggest learnings, maybe pitfalls you needed to avoid, as you started buying up different books?

Lloyd Sprague

What I found very quickly is a lot of advisors who are even thinking about retirement, they're very leery of someone taking their business. They built this over 10, 20, 30 years, and they're afraid when they get a call from a prospective acquisition that they're trying to steal and going to, you know, try to get their business on the cheap. So I think a lot of what we do is you look into a relationship that has someone similar type of business than you have someone who has a similar service model, and it is really a long transition process, anywhere from a year to five years to get someone comfortable enough in order to transfer their book of business to you.

Not every advisor wants to sell, and a lot of them have second thoughts after they're involved in the process. So what we do is we look at partnering with them. They said for a set number of years, then we would buy one tranche at a time. First tranche is going to be the bottom third of their book. It's going to be their either their least desirable clients, or smaller clients that gives them the ability to see how that transition occurs, the second year would be the second third, and then the final third. That's really their close relationships, their family and friends. So by doing over three different tranches, we feel that if they change their mind during the process, they still have control of their clients in their book, because the worst thing you could do is purchase from someone and then have them change their mind or want to re-enter the business. And that's not happened with us, but it is devastating when it does happen.

Winston Chang

Obviously, this takes a lot of work, right? So you have to be proactive. You have to set your mind to, I want to acquire a business. But it sounds like you also don't want to force it right. If it's not a match, it's just not a match. How do you balance those two things that kind of proactive, I'm going to commit versus the patient. Let's wait for the right opportunity to arise?

Lloyd Sprague

That's a great question. What my business partner and I had done years ago is we came up with a letter that says, here's what we're looking for, here's the type of practice we're looking for, here's the technology we use, and here's the client experience. So we try to give them a quick you know, here's what it would be like if you want to even engage in a phone call. So the first thing is, you want to make sure that when you start even discussing that early on.

So I just had an advisor that I called six or seven years ago. Called me up and said, Hey, my succession plan retired. Let's sit down and talk. So these were planting seeds that may not bloom for four or five, six years. So it's not many advisors come in and they said, I want to acquire someone this year. I'm going to find someone. We're going to get this done. I think that it's very, very hard unless someone has a health issue. Most advisors don't want to leave the business that quickly. They want a long transition to make sure their clients are comfortable, that the value of their practice is preserved, and that they can go into retirement or their next stage without worrying about phone calls from their clients and family saying, Hey, what did you do? This is not the experience I was looking for. So it's very important to have that constant communication, and I think by working together for a few years, you iron out a lot of those expectations.

You know, there's a lot of advisors who are very hands on, and clients don't make a lot of moves without them, and it's much more of a labor-intensive relationship. And there's others that are just like, hey, I'll call you, and you call me, and if, if there's no reason, then I won't expect to call so there's some very low maintenance advisors who do good business. They just have their client expectation is in a different plane, and you want to make sure that you're not setting yourself up if you're in an automated, fee based business, and you have a lot of high maintenance or highly engaged who want to talk about individual stocks or annuities or individual bonds. If you're not equipped to do that, the best thing to do is, is introduce them to someone who would want to do that type of business, because the worst thing we find is getting into a relationship with an advisor, and you do business differently, and the clients end up either leaving or just not happy with the new experience. So I think that's very important for planting seeds early on, and this is a long term process, to be able to get these acquisitions not only integrated, but once they're integrated, what to do, and we can go on to that in a moment.

And still to this day, I take an advisor out once a week for breakfast or lunch, just to find out about their business.

Winston Chang

So let's stay on this for a little bit, Lloyd. To what extent do you need to make sure that the service model is similar? What I mean by that is, you could probably overcook this, right? Like, hey, we've got a mahogany desk in our office. We need to make sure that we're buying office with mahogany. That's what you put in the letter, the tech stack that you have, the client experience, you know, and so, I guess the question is, how granular do you get? Like, how far down the list of similarities do you have to get before you say we're a good fit?

Lloyd Sprague

Yes. I mean, I think in the client experience, where we do client events, we do a baseball game for the Rockies during Faith Day in Denver, we do a big holiday party. We do some concerts over the summer. Now, most of the people we acquire they don't do that. You know, their older model of the business, maybe the ‘80s, ‘90s brokers. They were not the high touch was not there in I'm just saying in general, this is not all. But they're we find that a lot of the older advisors, they're not doing the client events, they're not doing the birthday cards, the newsletters. They're more of an old style of service. So I think that when you have someone who's used to getting a newsletter monthly, and then they don't, that would be a problem. The expectation would not be met. So you want to make sure that if they're getting newsletters, if they're getting semi annual reviews or annual you would want to keep whatever experience they're getting. Clients and advisors, sometimes they meet quarterly. That would not work in our model, because that's it's a little excessive to meet quarterly with the volume of clients that we have. So you want to make sure that, if that's their service model, that they would be comfortable moving to a semi annual and if they're not, you know, and it would not, might not be a good fit. And into that, all the acquisitions that I had done have been with my broker dealer. We did one with another broker dealer, and it was very clunky, because the clients don't know what a broker dealer or a custodian, you know, we'd call up and I'd introduce myself, Hey, this is Lloyd from LPL. And they said, Who's LPL? Who's my old broker dealer? Who are you? It's very confusing for them, even if your funds are at American Funds, and saying, Hey, I'm just servicing your American Funds portfolio, nothing changes other than the servicing agent. It created a lot of anxiety, even with letters and phone calls when it came down to moving a broker dealer. So just in our experience, we would look at another broker dealer acquisition, but after the difference in experiences for the client was night and day between moving between inter, intra, broker dealer, and then outside of the broker dealer.

Winston Chang

You mentioned Rockies games. Being in LA I'm a big Dodgers fan, so I think that would be a much more expensive event to go to.

So do you have to be pretty flexible with your fee structure and service matrix? Because depending on what they were getting before, you have to adjust. You're trying to control that as much as possible, of course, by finding practices that look like yours. But is there inevitably going to be some, variation?

Lloyd Sprague

I think you have to, you have to be, since it is all fees are negotiable. I think in some cases, you might have someone who, for certain reason, negotiated a better fee. And there's a good chance you might lose that client. If not, you have to make that decision, do I keep that client at a below market fee in order to keep the relationship? Or, maybe that becomes someone for someone else on your team. And as we pivot, when we take over two or three hundred clients, I can't take that many on personally. So one of the things the value proposition for these acquisitions is, I will promise. We're not going to house half the accounts because they don't meet minimums. They will be served by someone on our team. So we're not going to that's another issue here. With some of these large aggregators, they're going to say, hey, I really only want the top 30 clients. The rest of them are really not interesting to me, so I'm going to keep those and I'm just going to let the rest go. I don't think that's a good model, because a lot of these people, it might be their kids or grandkids, and I would not want to have my large account, and then someone not want to keep my annuity, or my kids 529 and say, hey, that's going to be house accounted. So part of the value proposition is I will either serve these clients personally or I will they will be on my team, so I will still be the final say, and the buck stops with me, but I will not be the primary base of the relationship for the clients that are below a certain minimum or revenue level. So we make sure they're getting the same or better service, but still making sure that we're not running into capacity issues because of what one person can do.

Winston Chang

What about thinking about inorganic growth, as a way to break into a market. So like, hey, we don't historically service, let's say this type of client, or we don't historically offer this type of service. But we just rolled it out. We just started working with some of these folks. Let's supercharge that particular offering or the number of clients that we are giving that particular service to, you know, do you ever think about it that way, or is that not a good way to go about growing a particular fledgling  side of your business?

Lloyd Sprague

No, I think that does make sense. But it's very hard to find an advisor who just focuses on one. So I have a friend of mine. He focuses just on the dental industry, and so most of his clients are in the dental field or dentist themselves. But it is very, there's only so many of those in Colorado. Or you know this, this group is in Colorado, so it becomes very difficult to grow scale when you have such a limited number of clientele, unless somehow you can get into a national society or something where you would be getting referrals outside your local so, in general, I find most advisors that I run across have just practices that have different type business owners, from individuals to retirees, but there's no thread through all of them. So at least in my experience, that might be an option for some, but I don't see that as a specialty, or that there's enough of one particular focus to to hone in on.

Winston Chang

How do you recommend advisors think through, growing organically versus inorganically? Like, should I go out and acquire versus just continue my incremental growth through referrals and marketing and so forth? Like, how did you think through that? And what's your advice for other advisors who are trying to balance the two?

Lloyd Sprague

Great question, so joining the retail side mid career, I didn't have as much time as someone who's young and can grow the old fashioned way. So I knew I needed to get to critical mass very quickly. And as much as getting referrals and working the book does work out very nicely, it just takes a lot more time than the acquisition. But what I looked at and the acquisition, or someone who would be interested in doing that, is really finding someone with a similar book of business that has the time frame, but it's also finding valuation. So what I looked for, for valuation is that my broker dealer will run a valuation. Most of the major broker dealers will do that, to give an idea of the multiple. There's also FP transitions. So the advisors I meet with said, go to your broker dealer, go to FP transitions, get evaluation, and whatever that number is, we will pay. We're not going to try to negotiate. We're not going to try to, you know, talk them down from the price or whatever that multiple is. We will honor that. We that way we feel it's a fair transaction. Now the timing of the payments, we will work on to make sure that we both are going to come out of the deal unscathed, because you don't want to write a full check and then have the market drop 50% the break even just takes incredibly long at that point. So we find some way to make it so that they will get their full benefit of the sale of their practice and protects us for from a prolonged down market.

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Winston Chang

Thanks Lloyd. That’s a good segue into valuation. We’ve talked about the high-level strategy when it comes to inorganic growth, now let’s talk about dealmaking. What are you looking for in terms of valuations and multiples?

Lloyd Sprague

Yeah, I'm always on the lookout for something. I think that the smaller books are, quite frankly, easier, because it won't hurt you as bad if we do get a downturn, you know, buying 25 or 50 million is a lot easier to absorb. Should we go into a correction mode than it is. Once you get over 100 million, it starts to become a little bit more stressful, just because the numbers have to be perfect or closer to perfect.

The biggest question is, you know, what are you paying for these? And, yeah, the issue I see is, when you read some of these articles, you see these huge multiples, and some of these roll ups are paying quite a bit of money for these books. Now, I look at this in a couple of different ways. Is that it's just like when you go and put your house on homes.com or Zillow, you want that number that pops up, even if that is not an accurate number, that's a number that you see. So you expect it to get that when you when you sell. I think where you see some of these roll ups, they're buying fee based business that are very clean, that don't have a lot of annuities, mutual funds, 529s, they don't have some of these more complex, or at least servicing products. And it's a lot easier to roll 100 clients. And saying, you're going to go from Model A into our model, and I'm going to and here's the performance, and here's how that works. So you see these much higher multiples in some of these roll ups for those types of books.

Now, you know, the multiples that we have been purchasing at and seeing are in the one to two times range, and that is what they're coming up with, FP transitions and through the broker dealer’s valuation right now, we pay between one and 2.1 times revenue. And that is what the numbers are coming up with, because of the age of the clients, the length of relationship, the product mix. And so I think it's coming down to, I don't think that the valuations are quite as high as they read about in some of the journals, and I think especially the older books that are have decades worth of different types of products require a lot more work to sort through and their multiples are not as high.

Winston Chang

That’s really helpful, thanks Lloyd. You started talking about some of the things that factor into what the multiple ends up being, you know, age, length of relationship, product mix. Could you break that down in a little more detail for us?

Lloyd Sprague

Sure, we go through and we look at, usually, it shows discounts for older clients and for A shares, and some of the things that are lower recurring. But what one of the books that we did not end up getting the average age was in the mid to high 70s. They had a lot of older clients, very large older clientele. And that's a little bit scary, because, you know, you talk about a client that's 10% of the revenue passes away. Will that family member stay? So I think it's, if a client has their all the generations, like, there's a there's a financial advisor, friend of mine, who has, in some cases, four generations of clients under the book, I would feel much more comfortable than just having the parents hoping the kids stay where the kids are, all over the country, in different places. So I think it comes to you look at what the valuation is very tied to the age building the relationship. I don't think it matters as much if they're doing a very good job.

But that product mix, if someone's doing transactions or brokerage, and the acquirer wants to do advisory, there might be some pushback from some of the clients, you know, there might be say, hey, I want it this way. I've always done brokerage, and I want to continue that, because that's how I've had this relationship for 25 years. It may be a uncomfortable to say that here's how we we run our practice, and here's what we plan on doing. So I think that's an important if you buy a brokerage book, or that's 75% brokerage, you have to weigh the risks of whether people will come over to advisory if that's what you choose on doing. And I think that discounts the value of that book, because I think all advisors who are advisory based would like to move in that direction eventually with the clients that they serve. And it would be a less attractive book that would not want to move that way.

Winston Chang

So you buy a book, and were thinking about transitioning clients over. You talked a little bit about the length of the relationship and it not mattering much. That's interesting to me. Do you think about it like the clock just resets to zero? Is there a difference between a client that you got through an acquisition versus a client you got organically?

Lloyd Sprague

That's a great question. So one of the things too, is each advisor that I acquire, I request that they keep their account with me. Because if it's good enough for them, it's good enough for their client. So at least if, it would be terrible if an advisor moved everyone over and said, Hey, I'm going somewhere different. As soon as everyone falls so I want them to say this. This was the right person for me. I trust them enough to have my assets, then you should trust them to have yours. That's the first thing.

Second thing is that transfer of trust is very large for an advisor who's had these clients for decades, but you know, one of my favorite clients was just found this advisor on the internet was only a two year relationship, and I wasn't worried about the length of their relationship, because we hit it off right away. And I think the value proposition we discussed in the first meeting made them feel very comfortable. So I think you have the trust gets them to Okay, I will give you the chance Winston to interview me and keep my business. So I think that is the glue that holds them together, having the advisor stay on and then ultimately earning their trust. And if you do, you'll get the rest of the family and referrals, hopefully, by providing that level of service.

And, as I said earlier, a lot of the older advisors, their service model is not as high as a more modern advisor. So I think it's very easy to impress someone with the newsletters and the events and the phone calls and the birthday cards. You know, for one of the funny things that I do is I send out Thanksgiving cards. Let's be thankful for our health and our family. Do something that's not just one of the 100 Christmas cards they get. They may get one or two or no Thanksgiving cards. Try to do things that are a little bit different. Other ideas, send something over the summer. Most people want, don't want to talk to their advisor or any accountant at that matter. Over the summer when, when they've done their taxes, you've done the reviews. But even when an idea of sending a magnet that goes on the refrigerator with cooking temperatures or they keep by their grill with your logo, always sending them something in the newsletters or something tangible to say, Hey, I know I haven't talked to them in a while, but I know Winston is thinking about me. So with that high touch, high contact, sending them information they can use, I don't think that that was the service model, you know, 10 or 20 years ago, 30 years ago, and I think the older advisors who chose not to do that or just didn't put that in their process, it's a great way to win those new relationships over.

Winston Chang

And are you waiting until the deal is closed and the ink is dry to make your first contact with all the new clients that you acquire? Like, how early on are you kind of introducing yourself in some way, either directly or indirectly, to your new set of clients?

Lloyd Sprague

So in most of them, that we've done partnerships. We've sent out a letter that said, you know, we're now partnering. They'll either say that, hey, eventually I'm planning on retiring. This is a bridge to get us there. So we meet with them. You know, within the first year since we know a lot of this is going to be two or three years down the road. It's not urgent, but what we do is we send the information, we meet with some of the larger clients and do planning, if we hadn't to see what other assets are there. And then we put them once they're part of our group, we put them on our monthly newsletter so they start feeling some of that experience right away. Unless they're the advisor does something different that would not be compatible with our systems, then they can continue to do that their old fashioned way, but we try to make the experience as quickly as we can seamless, so they know what to expect. Oh, now that you have a partner, I'm getting newsletters. Oh, there's a Thanksgiving card or a holiday party. So they're starting to get these experiences right off the bat, and then that we feel is the best way to get them to we want it to be like that old adage of boiling the frog. We don't want them to feel anything. We want them to know it's different, but not feel any different. And when they their advisor finally signs off, it feels like nothing has changed to the client. Oh, I had one. I had two. I have one again. This feels normal.

Think the worst thing that you could do is an abrupt transaction or change. There was one advisor who was leaving the States because of a health issue for a family member and wanted to be gone within a couple of months. And even if that is the real reason, that's very abrupt, and I think it would make clients nervous about what's going on. So I think you have a long runway before you start. You do a two or three year transition, and then that type of long goodbye makes it for sticky assets and the clients will, you know, if they're not happy, they'll move along the way. But the good part is, if they move in that initial transition, we don't have to purchase them. You know, if someone has a $50 million book, and by the time we work together for two or three years, is 45 left because of people moving on, great, then you're only buying the remaining book. So I think it's protects the buyer as much as make sure that gives a the seller a try before you buy experience to make sure that if the clients weren't happy, they could unravel the transaction before it even begins.

Winston Chang

Lloyd, you mentioned clients leaving. Do you have a roughly, like, a percentage of clients that you kind of expect to leave or, when do you know that it's been successful?

Lloyd Sprague

So the data that we've seen is that if you're in the 75 to 80% retention, this is across all the data of all broker dealers and all acquisitions. If you're in 75 to 80 you're in really good shape, because inevitably, people have relationships outside of you, and even if you're with your advisor for 30 years, you may have an uncle or a cousin or a neighbor in the business who has been asking for your business and, you know, they might not have felt comfortable, but hey, now there's been a change. It gives me the freedom to do that. And so I think that if, we look for 75 to 80% retention, we've been in the 90s, at least, I have for this, the seven acquisitions that I've been involved with, because we think the process makes sense, and we know there's going to be some people who will leave just for for any reason. So we don't take it personally. We just think that, hey, there's a lot of great advisors, there's a lot of ways to serve people, and we like to work with people who, follow our lead in saying, Okay, here's, here's what you need to do to become financially independent.

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Winston Chang

Great. So that’s transitioning clients over. Let’s wrap up with a few quick hits. First, any final words of wisdom for our listeners who might be interested in potentially acquiring a book at some point?

Lloyd Sprague

If you're interested in doing acquisitions, I would get with your favorite wholesalers. They know everyone in your territory. Meet with for Roger and for American Funds. Here, he knows everyone's been in the business forever, but you go to their events. A lot of them have business building events best practices. I go to those frequently, because you meet people just having a conversation over a Coke or a coffee, and someone just says, Hey, what's going on? Hey, you know what? Things are changing in the business. I really don't like do planning. I'm thinking retiring in three years. A lot of these come organically from just being at those, whether it's your own broker dealers, regional meetings or going to some of those in your city. And I would ask every wholesaler that you work with, you know, who do you know that might be looking at retiring in the next few years? And a lot of them, they know both personalities. And a lot of the acquisitions that I'm doing now were referrals from another wholesaler who said, I think you two think the same. You talk about the same. You invest. It sounds like you invest the same. You should have a cup of coffee.

And after that is even before you acquire, I would get funding for the acquisitions. Have a plan of what you'd be looking for, what the multiple issue pay, for the lending institutions, you want to make sure that they know you have dry powder ready to go. Have a loan for a half a million, a million, million and a half, even before then. So a lot of this, some people find an acquisition, get excited about it, and it finds out that the payments or the loan is just too large for one person to carry. So if you're part of, I'm part of a hybrid, maybe your hybrid group might have some ability to do some lending for the larger group. I know some of the broker dealers will lend to people in their own broker dealer, or there's plenty of outside institutions that specialize. Live Oak is one that I've heard of, not, not worked with, that will fund some of these acquisitions. So finding the right person or right group, making sure that this a good fit, as far as your relationship with that advisor and the potential clients and how they service people, making sure you have a runway to make something happen in a reasonable amount of time working together, and then doing some sort of exit plan, and then finally, making sure that those loans and all of that is done before then it's just like being pre approved for a home. And it's much easier to do that than to try to find a home. Someone wants to close quickly and you're scrambling trying to get financing. It's  very stressful and uncomfortable. So we'd like to, we'd like people to have that before they start looking ideally.

Winston Chang

Wonderful. Lloyd, briefly, I'd love to go to the other side of the coin. We've covered some of this indirectly, but any advice that you give to advisors who are considering exiting this way, like who want to get their book bought, and let's say they're reasonable, you know, they're not delusional about the multiple that they're going to get. You know, how do I make my book more attractive down the line?

Lloyd Sprague

Sure, one of the things in when I have these coffees or breakfasts with some of these advisors, once you try to find out what their long term goals are. You know, in some of the advisor joke and say, Hey, I'm gonna, I'm gonna do this to my last breath, which is, you know, I think tongue in cheek a little bit.

But as health changes, a lot of people will, you know, no one wants to realize your own mortality, and you don't want to have an event happen. You know, my dad had a massive stroke at 74 he wasn't in the business, but how he had his life set up to that point, was not ready for what happened.

And I think that the conversation that I have with these advisors, and what I would recommend if you have someone who you would be interested in acquiring or even opening the conversation, is succession planning.

So that's one thing that a lot of the broker dealers are asking their advisors to do or requiring, in some cases, but a lot of them will just check a box or someone that maybe someone in their office that wouldn't be a good fit, but they put a name on a paper. So I met with these two gentlemen who are in their 70s, and I we met with them and said, Hey guys, what's your succession plan? And they pointed to each other, and they both looked at each other and laughed, and he said, I don't want his book. He's like, I don't even want my own book. And the other one says, I don't want his book, I don't even want my own book. And so they picked someone that was not realistic, because once you sign that succession plan, you have to serve these people.

And so imagine you sign that, and then this actually happened with one of my friends that his business partner passed away, and he really didn't want to take over the book, and he promised the spouse he would pay for five years revenue, and had to do a lot more work than he was prepared to do in the later part of his career. So I think the thing starts with succession planning and saying, Okay, God forbid something happens to you tomorrow. What's your plan? And they may have something on paper, but it might not be what they would really want to happen, should they had an event, a stroke or some sort of health event. So I think that getting into that, if you create that relationship, and with each one of these advisors, and with a with another seven that I'm not in the acquisition currently on their succession plan. God forbid something happens to them, I'm going to take over the book and serve their family for the next five years. And you have to have that capacity built in. So the conversation starts with and the conversation for these other advisors is, Hey, God forbid something happens, I'll take care of your family. And for that, I want first right of refusal when you go to sell your book. So come to me first, if it works out. Great. If not, I want the first opportunity to purchase your book. And by setting these up with multiple advisors or I think that that creates your runway for the next five or 10 years. You hope you don't need to have several acquisitions on an event like that, but you want to make sure that they know. And what I found is they go back to their families and say, Hey, God forbid something happens, I'm going to make sure I'm protecting the value of this practice, going to someone who's going to serve my clients for years to come and that I trust will take care of you. And I think once you can strike that chord, which is the very first, then the relationship builds from there.

Winston Chang

Thanks Lloyd. OK, so have a succession plan, a real one, not just a name on a line. Anything else you’d recommend all advisors have in place if they ever want to be an acquisition target?

Lloyd Sprague

I think that back to what you said, as far as the multiple is most broker dealers will do for a fee, they'll do a valuation. So every advisor I meet with, I said, get a valuation. I don't care. Just get it right now. Even if you're 10 years out, you should know what the present value of your book is and put that in your file. Because a lot of times, when they need it, it takes a while to create. They have to give the either FP transitions or the broker dealer a lot of information, or it takes a long time to create those documents, sometimes a few months get that on file.

Just so you know in that, I go back to my Zillow or my homes.com. What is the value of your home? So you have, you know, some sort of basis point, a basis to reflect back. And the multiple is right there, whether it's FP transition or the broker dealer. So I think right there, by running that, that number, you can start saying, hey, Winston, this is the number that they came up with, and then start using that as a basic should something happen? This is the multiple I'll pay your family. Or Should something happen? This is a multiple I would pay for the book if you decide to sell. So I think it takes some of those. Hey, I heard they're going for this to a real number of their specific book. And you know some of these, one of the good parts about these services is they'll benchmark you to other people with a similar size book, with a similar mix of business to show you what the multiples have sold. So you have a little bit of context to say, Okay, this is I have a book that is heavy in annuities, or heavy in A share mutual funds. This has been the multiple, and these have been the reasons. So I think that the more you can educate what the real or correct value would be, then as time goes on, last thing you want to do is create a relationship. Say, I'd love to sell my book to you, and then their number is way off from what's reasonable for acquisition.

Winston Chang

Yeah, exactly, yeah. Hey, Lloyd, thank you so much for joining us today. This was a great conversation, I think, super helpful to a lot of our listeners out there. Really appreciate you taking the time.

Lloyd Sprague

Hey, I thank you very much. I appreciate your time. I appreciate American Funds and Capital Group and I appreciate the relationship and anything that we can do for you.

Shaun Tucker

Well, that’s it for this episode. We hope you enjoyed this conversation with Lloyd Sprague.

As he mentioned, wholesalers and events are good resources for finding and meeting other advisors who might make good acquisition partners for you. So don’t hesitate to reach out to your Capital Group contact for any questions related to buying or selling a book.

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