Sylvain Corriveau, a financial planner with Investia Financial Services in Laval, Quebec, has bought five investment funds clienteles over the years. For him, potential future income is only one factor to consider: more intangible elements weigh heavily in his book of business valuation. "Who you buy from is just as important as what you buy," he points out.
He considers categorically valuing an investment clientele at 1.5 times assets or four times service commissions misleading. "Especially if clients jump ship during the transaction because clients are less loyal than before," he says.
Before acquiring a block of business, Mr. Corriveau always asks about the seller's approach to the clients. What was the clients' return in the last five years? How did they perceive their representative? Were they satisfied? Most importantly, as the new buyer, how will these clients perceive you?
"If you buy a block of business from a representative with a take-charge style while you tend to listen to the clients more, will clients used to being told what to do feel lost with you? How well do they know financial products?" he asks.
This is why Mr. Corriveau demands concrete figures before buying. Promises are not enough. "If a representative tells me his clientele has potential, my first reflex is to ask why he didn't develop it." He also takes into account the geographical distribution and average age of the clientele. Ideally, he tries to enlist the seller's support during the transition, when he first meets the clients.
Some buyers willingly pay more than the usual multiple for a book if they can restructure it to increase their income. For example, if someone buys a clientele with a no-load fund, they can generate added value from the block of business by converting the portfolio into a fund with a back-end load.