Timothy D. Welsh, CFP, is president and founder of Nexus Strategy, LLC, a Larkspur, Calif., consulting firm to the wealth management industry. Nexus Strategy works with investment advisors on growth strategies and partners with financial services and technology firms to distribute products and services through the advisor channel. He has also worked for Schwab Advisor Services and Merrill Lynch. He was a member of the National Board of Directors of the Financial Planning Association.

What is the outlook now for owners of financial advisory companies who are looking for an exit strategy?

Very good. There is a lot of interest in the financial advisor industry. Advisors have developed very valuable practices over time. There’s still a big demand for profitable firms, not only for other firms looking to acquire but also by aggregators and other financial organizations.

They are typically small businesses, built over time, with financial advisors as owner/operator. They’ve gathered a lot of assets for their clients. Their businesses are desirable, because they offer predictable, fee-based revenue. They’re not selling anything; they offer advice and guidance. The whole industry is growing, because it serves baby boomers going into retirement. 10,000 people retire every day. There’s a service industry to support those folks: Financial advisors with retirement planning.

You say that a document management system can save advisors up to 9 percent in profitability. How does this come about?

There are three components to the research. First, there’s space savings. You can grow your business in your existing footprint, but you don’t need to increase your space and you can get rid of your filing cabinets. Second, there’s compliance. It’s a regulated industry. Document management streamlines that and provides tremendous savings.

Third is back-office efficiencies. You can streamline paperwork and processing and automate processes with workflow. And you can integrate document management into other systems, such as CRM, to create more time savings. When the documents are all on the screen, you don’t have to go to the filing cabinet to get them. You can right-click and send them out. It saves a tremendous amount of time.

You describe a number of techniques that are useful for organizations looking to make themselves more easily transferable. To what degree are these techniques useful for any company?

In every business that is valued on operating profit or cash flow, the more profitable you are, the more valuable you are. It’s universal across all industries. If you want to increase your valuation, your lever is how efficient you are and what technology you are using to drive expansion and profits to the bottom line. There’s a strong business case for document management. A lot of companies don’t have it. Document management  gets higher cash flows, and it’s highly valued during mergers and acquisitions when owners do ultimately retire and sell their business.

When you add those components up, it amounts to about a 9 percent savings in overall revenues. That’s pretty compelling. If you have a $1 million business, then you have $90,000 more profitability every year. Businesses are valued on profitability. So if your business is valued at ten times profitability, then you have a business value in your enterprise of almost a million dollars more. There’s a hesitation to change and making it all automated, but the benefits are just remarkable. That’s what we’re seeing.

This is a time for a lot of these advisor owners who are thinking, maybe in five to 10 years I need to figure this out. If I was going to sell my house, I’d paint it and upgrade the kitchen. This is similar, but for business valuation. Hopefully, it makes the decision much easier. You can attach it to having a more efficient, compliant practice, but also to having a more valuable business that owners can enjoy when they retire someday.


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