Advisers who only service clients in their own age demographic might be restricting their long-term business value, according to Russell Investments (Russell).
While many advisers gravitate towards clients around their own age bracket, Russell has said this could have a limiting effect on their business value at the point of sale.
“From the retiring adviser’s perspective, having an older client base could potentially remove any adviser under the age of 35 from the potential buyer’s list, which could impact the ultimate price you can achieve,” Russell Investments head of advice capability, John Nolan told InvestorDaily.
“In my experience, where clients are around the same age as the retiring adviser, they will accept an adviser say 10 to 15 years younger, but it becomes a real stretch when the age gap is 30 years or more.”
Having a client base limited to an older demographic could also impact the value of a practice’s client book.
Mr Nolan said that if the clients of a retiring adviser are of a similar age bracket, it might mean a majority share of the client book are also in the process of retiring, affecting its worth to successors.
“If transition to retirement strategies are already in place, the purchasing adviser may find themselves in a position where most of the heavy lifting has already been done by the adviser, and the need for ongoing advice beyond retirement may be questioned by the client,” Mr Nolan said.
“This is fine if the purchasing adviser has factored this into their calculations, but if they aren’t careful, they will pay a premium for a book of business that is reducing in value, not increasing.”
Russell has said that by working on providing a specialist financial advice service, practices can increase their overall value proposition.
By providing specialised advice, firms could remove the key person risks associated with succession by taking focus away from individual advisers and placing it on a core business focus.
“If I’m looking around for a business to buy as an adviser, I really want to know what it stands for – I don’t want there to be surprises, and I don’t want the value of the business to exist purely in the personality of the person who is retiring,” Mr Nolan said.
“This may mean advisers partnering with other specialists is an approach worth considering, but it’s important that advisers don’t get caught out looking like a Jack-of-all-trades when prospective clients come knocking.”
