Greg Sykora of Sykora Financial at Investia, says many wholesalers are the right age to succeed advisors. 'A 65-year-old advisor likely doesn’t want to sell to another older advisor,' he says.Supplied
In Buy the Book, advisors discuss their experiences acquiring a book of business, from practice valuation to client retention.
Greg Sykora, a 39-year-old certified financial planner with Sykora Financial at Investia Financial Services Inc. in St. Catharines, Ont.
Hailing from the wholesaler world, Greg Sykora developed strong relationships with financial advisors by solving problems and delivering good service.
After getting married and with a baby on the way, Mr. Sykora decided to become an advisor in 2021. He was concerned with the long-term viability of wholesaling in an industry facing increasing margin compression, but wanted to continue to work a job where he was able to help people.
Along the way, he earned four professional designations, including the certified financial planner and chartered investment manager.
“Wholesalers are the perfect age [to succeed] aging advisors,” he says. “Many are in their early 30s to late 40s and have 20-plus-year career runways. A 65-year-old advisor likely doesn’t want to sell to another older advisor.”
The book
Mr. Sykora knew the seller well. A key client for five years, the seller confided he intended to sell his book of 200 client households with around $110-million in assets. He asked Mr. Sykora if he knew anyone interested.
Mr. Sykora put the advisor in touch with possible suitors in the Niagara region, but with no natural fit, he put himself forward as a candidate.
He was already somewhat familiar with the seller’s book. Half of the households were only receiving investment management, while most larger clients had comprehensive financial plans as well. Clients were mainly invested in high-fee mutual funds.
Mr. Sykora looked at the book’s demographics and organization, and the seller permitted him to interview 10 of his clients. Through that process, he learned about the seller’s management style and investment philosophy.
“The reviews were all positive,” he says, and most were longstanding clients.
The price
Price negotiations started in the spring of 2021, with the deal finalized that fall. Mr. Sykora paid 2.3 times recurring revenue for the book, under the industry average of 2.5 times. He says the seller was more concerned about finding the right successor than extracting a high price.
Mr. Sykora paid 10 per cent upfront, per the seller’s request, with the remaining amount financed through loans via his dealer. While the original deal was to pay off the loans in seven years, he managed to do it in four.
The transition
The seller had been preparing clients for his retirement for a decade. In October, 2021, he introduced Mr. Sykora as his successor and brought him on board. The transition took four years, and Mr. Sykora is now the primary contact on all accounts.
Even though the agreement stated the seller would stay on for five years, he will now remain with the firm indefinitely in a minor capacity, Mr. Sykora says.
“I let him continue because he expressed that he enjoys working and coming to the office,” Mr. Sykora says. “I know his continuing presence is reassuring to several clients. We also get along.”
Technology is one area that needed an overhaul. While the seller relied on Excel spreadsheets and handwritten letters, Mr. Sykora prefers financial planning software, so he made the migration.
“The robustness of the software just helps us in so many ways to be more accurate with our projections,” he says.
On the investment front, Mr. Sykora moved from active investment strategies to lower-cost passive investments. Average client fees on investment funds were around 2 per cent when he bought the book, he says, and have been reduced to around 1 per cent.
He says he’s been able to retain 99.5 per cent of the clients, with just two or three leaving each year.
Advice for buyers
Quantity is not quality, Mr. Sykora says. When he moved from wholesaling to become an advisor, he received a few offers to take over books. While the temptation to triple his assets and earnings crossed his mind, he fell back to earth.
“I’ve come to realize I don’t really need to buy another book,” he says. “It will be better to acquire clients organically.”
Are you a financial advisor or financial planner who recently bought a book of business? Globe Advisor would love to speak with you about your experience. Candour, especially around the finances, is appreciated, and your name and photo will be used for the column. Please e-mail dgage@globeandmail.com and include a brief synopsis of your situation.