Business Growth Strategy Concept

Executive summary

Every entrepreneur wants to grow his or her business. The financial services sector is no exception. Right now, we’re in a favorable economic climate. On the one hand, many advisors are approaching retirement age and want to sell off their block of business; on the other, financing is available for acquisitions.

But watch out for pitfalls!

Potential buyers run the risk of buying a block of business for the wrong reasons.

Before entering the acquisition process, you need to ask yourself four questions.

If you decide to go ahead, you need to engage in a rigorous acquisition process. Don’t be seduced without doing your homework.

You wouldn’t buy a house without the support of an expert. Then do it for the acquisition of a block of business, contact us to represent you:




Growth and acquisitions

Every company, no matter how big or small, wants to grow in the short, medium or long term. The financial world is no exception.

The growth of a financial block

There are three ways to grow a financial block.

1- Internal growth: you rely solely on your existing customer base to ensure sales growth.

  • New sales (insurance and/or investments)
  • Growth in assets under management during periods of market growth.
  • Referrals from current customers

This approach generally ensures steady but modest growth.

2- Active growth: in addition to relying on internal growth, some advisors actively seek  new customers.

  • “Cold call”
  • Participation in organizations such as chambers of commerce, charities, etc.
  • Telemarketing outsourcing, etc…

3- Growth through acquisition: this type of growth aims to significantly and rapidly increase a company’s turnover. There are risks and benefits involved, which we’d like to discuss in this text.


Two phenomena are driving a wave of acquisitions in this sector. First, the aging of financial advisors who want to retire or semi-retire. Secondly, the concentration of mutual fund brokers, such as Investia, Assante and Raymond James, who are willing to facilitate the retention of blocks within their organization. In economic terms: the barriers to entry are low.


Three worst reasons to buy a block of business:

Buying a block of business in the financial sector is becoming disconcertingly easy, as supply and demand grow almost daily. But beware of the pitfalls that await you. Here are the three worst reasons to buy a block of business.

1 – Find a new niche in the market.

As if Coke began producing Palmolive soap! Above all, don’t laugh. As a financial advisor, you can’t effectively serve just any client. The proof: you don’t. Resist the temptation to spread yourself too thin. Instead, buy a clientele that complements the one you already have.

A:     “Listen, Martin Luc, I can buy a clientele of doctors, and the current consultant will help me’’.

Q.:    He’s been serving this clientele for 30 years. “He knows his stuff”, not you.

Instead, look for a clientele similar to your own! It’s a win-win situation!

2 – Buying customers to save your sinking ship

Has your block of business taken a beating because of the ups and downs of the markets? Acquiring a new block isn’t the way to rectify the situation. First, work on getting your practice back on track. Then you’ll think about acquiring. And don’t worry, there will always be good opportunities on the acquisition market.

3 – Looking for a shortcut to higher profits?

Don’t buy a new block of business. Work on your current one. Your company’s profits won’t magically increase by acquiring a new block. You’ll have to work hard, and probably for a few years, before seeing profits materialize.

The cost of acquisition is likely to eat into your profits in the first two or three years.

As you can probably realize, you don’t fall into any of these categories! Let’s continue our journey.

The four killer questions!

Increasing assets under management is not a sprint, it’s a marathon.

Remember that most advisors consider their customers to be family. You must first demonstrate that you will take care of them as they have done. Forget the rest, it doesn’t count at first.

Before you begin any acquisition process, ask yourself the following questions.

1 – Can you acquire a new clientele?

The acquisition will require you to set aside a large part of your existing clientele to concentrate on the new one. Will your support staff be able to handle them adequately?                     

Do the files of this new clientele rest in 22 filing cabinets or in the cloud? If the first case, will you need to move to larger offices?

“I can recruit some of the vendor’s support staff”. Where will you accommodate them?

The killer question: “Will your current situation cause you to lose some of these new customers while alienating your existing ones? The new office space, did you consider this cost addition in your financial projections?

2 – Who are my current customers?

How well do you know your core customers, representing your financial practice? Why do they do business with you? Your strengths that they appreciate. Will you be able to promote them to new customers? What kind of customers do you most enjoy working with?

The killer question: do you see yourself as a chameleon who can adapt to any type of customer?

3 – Who will finance your acquisition?

Have you analyzed the cash flow required for this acquisition? On what factors does the support of the financial institution that will lend you the money depend?

The killer question: have you done your homework?

4 – What is this block of business really worth?

Think outside the “x times revenues” paradigm. Is this an elderly clientele that is making substantial annual withdrawals? Will you be able to recover the assets when the majority of customers die?

The paradigm is that a clientele is worth between 3 and 5 times the revenues generated over the last 12 months. Remember, this is a paradigm, not a rule.

The killer question: are you able to establish the real price of the clientele you intend to acquire, and especially the future cash flows?

Queenston is the leading Canadian firm specializing in mergers, acquisitions, transfers and valuations in the financial products distribution industry.

You’ll only buy one or two business blocks in your lifetime. Queenston is involved in the majority of transactions in Canada.

Our fees pay for themselves

Visit our website: www.queenston.net or contact us.


5 – Due diligence audits

  1. a) What is an acquisition audit?

Let’s say you’re planning to buy a 4-unit building and intend to live in one of the units. You hope, rightly or wrongly of course, that the rents on the other three

Let’s say you’re planning to buy a 4-unit building and intend to live in one of the units. You hope, rightly or wrongly of course, that the rents on the other three units will cover your overall expenses. You will :

  • Have the building inspected
  • Check the solvency of tenants
  • Analyze the sale price of similar buildings in the neighborhood

You do due diligence or an acquisition audit. The same applies to the acquisition of a financial business.

  1. b) Software or paper?

Paper: 3 times, software: 4 times or more the net annual recurring revenue

Will customers be delivered to you in file cabinets or in a software package such as Équisoft/Connect, formerly Kronos?

It’s impossible to pinpoint the exact value of a clientele on paper, as factors such as the age of customers, the number of families and a host of other factors can influence the price.

Dealing with a paper-based clientele will require a lot of time and money to numerize all files. A seller with a paper clientele would be well advised to scan it into digital format before starting to sell it.

  1. c) The lifetime value of customers

When a salesperson tells you that the revenue generated by his customers is close to $250k per year, he’s only talking about the day on which the calculation was made. Six months later, will this value be $255k or $225k?

The notion, and I do mean the notion of lifetime value, can help you estimate income trends.

Let’s take a client, Paul: his assets under management are estimated at 1M. He’s still contributing, but as he’ll be retiring in five years’ time, he’ll be in a period of disbursement.

He will end his disability insurance policy in five years, as well as his critical illness policy, without converting it to long-term care insurance. He plans to buy a condo in Florida when he retires.

Being single, he will leave everything to his children, who have their own advisor.

If Paul represents the desired clientele, no bonus on the sales multiple!

Let’s take another customer, Robert: same assets, will retire in five years. Will sell his condo in Florida to travel with his wife while his health allows it. Will convert his critical illness policy to long-term care policy. His wife is his sole heir.

Robert will generate significantly more cash flow (income) than Paul over the next 10 years.

If Robert represents the desired clientele, add a bonus of 1 X on the net annual recurring revenue’s multiple.

Since you expect to repay the lender over a 10-year period, the cash flow generated by a business block today does not necessarily guarantee the cash flow it will generate in 5 or even 10 years’ time.

As part of the acquisition audit, you or a Queenston expert can help you estimate future cash flows.

  1. d) Customer meetings

When you buy a multiplex, you can visit the premises and meet the tenants. If you’re buying a 500-customer block, this is more difficult.

You can, however, have access to their files.

Plus or minus one half of the net annual recurring revenue’s multiple.

  1. e) Compliance of the business block

Once the sales contract has been signed, you’ll have to live with the seller’s compliance defects. Has it already been inspected? Can you see the inspection report? Have there been any customer complaints? What was the outcome?

You won’t be able to say to regulators or a judge, “I didn’t make that mistake, the person who sold me the block did.”

Some organizations will take on these defects or errors in order to keep the block in their fold. Not always reassuring.

We simply want to draw your attention to this aspect that you should not overlook. Make sure you choose a legal advisor who knows the business.

Plus or minus one half of the net annual recurring revenue’s multiple.


Buying and selling customers in the financial services industry should always be a win-win situation, provided you go about it the right way and let the experts guide you.

Some financial advisors buy a clientele, say 4 or 4.5 times the revenue, and go after the opportunities. To do this, you need a solid team to take care of the existing clientele.

Other representatives won’t adapt a proactive attitude, content to be reactive.

What kind of buyer are you?

Martin Luc Derome, CEO


Sources: Beatrice Paez, Investment Executive, September 28 and 29, 2016



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