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Your Present, Your FutureMaking the Most of Your Practice

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Introduction

Building a succession-friendlypractice is part of taking care

of investors and being a“client-centred” advisor

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What Do You Think Your Practice Will Be Worth?

Expected Value at RetirementPercentage of Respondents

<$100,000 4%

$100,000 to $499,000 39%

$500,000 to $999,000 22%

$1,000,000 + 31%

Don’t Know 6%

Source: Advisor Impact’s Practice Update 2004

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What is Your Practice Actually Worth?

$497,000

$186,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

2004 Average Sold Price

Fee-Based

Commission

Source: www.businesstransitions.com. Business Transitions Report 2005

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How to Value Your Practice

Yardstick Multiplier

Assets Under Administration (AUM) 50 – 200 bps

Historical Commission and Fee Income 1.0 – 1.5 times

Historical Annual Recurring Revenues 2.0 – 2.5 times

Revenues Actually Received 2.5 – 3.0 times

Free Cash Flow 2.0 – 4.0 times

Source: Sandra Foster, Buying and Selling a Book of Business (Headspring Publishing, 2001)

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Managing Your Business as an Asset

Look objectively at your business model

Examine the quality of your client base

Emphasize efficiency and profitability of your practice

Focus on the future

Advisors Only

What Decreases the Value of Your Business

Unprofitable clients

Too many liabilities or expenses

Placing too many conditions on the sale

Reluctance to sell

Over-dependency on the owner

Compliance concerns

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Ten Strategies to Maximize Value

1. Develop and follow a business plan

2. Keep meticulous financial records

3. Maintain up-to-date client files

4. Nurture a brand in the marketplace

5. Invest in systems and processes that enhance efficiency

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6.

7.

8.

9.

10.

Ten Strategies to Maximize Value

Become a “client-centred” advisor

Emphasize a team approach

Make it difficult for your clients to leave

Streamline your practice

Protect your business with a succession plan

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1. Develop and Follow a Business Plan

Where are you now?

Where do you want to go?

How are you going to get there?

A business plan helps provide focus and direction. If you don’t have one, you’re

reacting and not being proactive.- Pat Horning in The Advisor’s Guide to Business Building, Volume 2

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Elements of a Business Plan

Executive Summary

Business Overview

Industry Overview

“A man who does not plan long ahead will find trouble at his door.”

- Confucius, (551-479 BC).

1. Develop and Follow a Business Plan

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Elements of a Business Plan

Marketing Strategy

Implementation Plan

Financial Plan

“By failing to prepare, you are preparing to fail.”- Benjamin Franklin

1. Develop and Follow a Business Plan

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2. Keep Meticulous Financial Records

Income Statement

Monthly Cash Flow Statement

Annual Cash Flow Statement

Balance Sheet

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3. Maintain Up-to-Date Client Files

Keep copies of all client correspondence

Responses from client surveys can help you identify priorities and service expectations

Maintaining complete client files will help you identify clients who are not

contributing to your bottom line.

Advisors Only

4. Nurture a Brand in the Marketplace

Differentiate your practice

Create a position

Advertise your team

Defining what separates you from everyone else increases the value of your practice.

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5. Invest in Systems and Processes That Enhance Efficiency

Gross Profit Margin =

Gross Profit

Total Revenue

Source: Advisor Impact’s Practice Update 2004 Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Profit Margin

Brokers

Planners

Profitability Benchmark

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Clients per full-time equivalent staff: 118

Clients per professional: 214

Assets per full-time equivalent staff: $25,270,500

Assets per professional: $25,683,621

Gross revenue per full-time equivalent staff: $247,767

Gross revenue per professional: $239,920

Analyze trends in these metrics and work to enhance the productivity of your business.

Figures shown are averages from the Practice Update 2004.

5. Invest in Systems and Processes That Enhance Efficiency

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6. Become a “Client-Centred” Advisor

Research Results Uncovered Two Distinct Groups

strong focus on relationships interest in investment process did

not overshadow client activities

technically oriented focused on investment strategies,

portfolio structuring, and analysis

2. Client-Centred Advisors

1. Investment-Centred Advisors

Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark

Advisors Surveyed

Investment-Centred

86.2%

Client-Centred

13.8%

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All values in US dollars. *Six month period preceding survey dates (April 9th and 10th, 2001). Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark

Results over six month period*

New clients

Average assets per new client

Existing clients providing new assets

Average new assets per existing client

Total new assets

Which type of advisor would you rather be?

5 times more new clients, 30 times more new assets!

Client-Centred

Advisors

6.8

$269,000

7.3

$64,000

$2,296,400

Investment-Centred

Advisors

1.3

$51,000

0.8

$13,000

$76,700

6. Become a “Client-Centred” Advisor

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7. Emphasize a Team Approach

Client needs Education Personality Manners Flexibility

Source: www.advisor.ca

Your team is an extension of you and your business.

Factors to Consider When Hiring New Team Members

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Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark

Differentiate yourself as a trustworthy advisor through superior service and advice.

8. Make it Difficult for Your Clients to Leave

Products and services sold become the by-product of meeting your clients’ needs

Create a “one-stop shop” by cross-selling multiple products and services

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% of Clients Providing 2 or more Referrals

17%

34%

49%

0%

10%

20%

30%

40%

50%

60%

1 Service 2 Services 3+ Services

The Benefits of Cross-Selling: Client Satisfaction and Referrals

Clients offered 3 or more services indicated a 96.6 percent satisfaction rate and generated more referrals.

Source: Price & Associates

Interviewed: 778 super affluent clients with $5M+ assets

8. Make it Difficult for Your Clients to Leave

Advisors Only Source: The Best of Times, CEG Worldwide, John J. Bowen, JR. and Robert Clark

Develop Your Service Offerings

Ensure your clients receive a high quality level of service and experience

each and every time.

8. Make it Difficult for Your Clients to Leave

Evaluate your service from your clients’ perspectives

Offer clients the appropriate number of choices

Go above and beyond the normal call of duty

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9. Streamline Your Practice

Remember the 80-20 rule

Educate your clients

Transition to a fee-based model

Hire an associate

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9. Streamline Your Practice

Converting to a fee-based model can demonstrate your real economic interest in your clients’ finances

Fee-based practices may be easier to sell in the future

Moving to a Fee-Based Model

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10. Protect Your Business with a Succession Plan

In extreme cases the value of your practice could disappear

Junior Advisors could walk away with your clients

“The less time you have on your succession clock, the fewer your options. The challenge for many today is to make sure that they are giving themselves enough room to maneuver.”

- Mark Tibergien, Practice Made Perfect: The Discipline of Business Management for Financial Advisors.

Advisors Only

What would happen if you fell seriously ill during RSP season?

“Every financial advisor has a moral obligation to make sure their clients are taken care of, especially in the event of

something bad happening to them.”

- Mark Tibergien, Practice Made Perfect:The Discipline of Business Management for Financial Advisors.

10. Protect Your Business with a Succession Plan

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Source: Advisor Impact’s Practice Update 2004

Most Advisors Plan to Sell Their Practices at Retirement

10. Protect Your Business with a Succession Plan

Sell to an existing junior advisor 11%

Have no established plans 23%

Sell or transfer to a child 9%

Other 7%

Sell to an unknown third party 27%

Sell to an identified third party 7%

Sell to an existing partner 16%

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Buying or Selling a Practice

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Partnering with Other Professionals

Accountants can provide tax advice

Lawyers can draft the purchase and sale agreement

Third-party negotiators can help with mediation

Business coaches can help with human resource issues

The professionals you choose can make the difference between a transaction that goes smoothly

and one that ends in frustration.

Advisors Only

Finding the Right Match

Look for a buyer that will treat clients the way you do

Deals usually breakdown because of disagreements of how the business will be run

A good seller feels the presence of his or her clients saying, “Please find us someone in whom

you trust and someone we can work with.”

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Keeping Clients Happy

Present the buyer as a “successor”

Explain the need for “ongoing professional and personal contact”

Keeping clients happy is clearly a matter of reaching out and presenting a united front.

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Introducing the New Advisor

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Negotiating Payment Terms

0%

10%

20%

30%

40%

50%

60%

70%

Fee-Based Practices Commission-BasedPractices

Deals paid with earn-outs Deals paid with a promissory note

Deals that used earn-outs Deals that used promissory notes

Source: Business Transitions, 2004

Advisors Only

Maximizing the Value of Your Practice

Look objectively at your business model

Examine the quality of your client base

Emphasize efficiency and profitability of your practice

Focus on the future

Advisors Only

Start Today!

A good plan today is better than a perfect plan tomorrow.

- George S. Patton

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Resources and Support

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Resources

Sandra E. Foster, Buying and Selling a Book of Business. Toronto: Headspring Publishing, 2001.

Mark C. Tibergien and Rebecca Pomering

Practice Made Perfect: The Discipline of Business Management for Financial Advisors. Princeton: Bloomberg Press, 2005.

Mary Rowland, In Search of the Perfect Model:

The Distinctive Business Strategies of Leading Financial Planners.Princeton: Bloomberg Press, 2003.

Advisors Only

Additional Resources

www.advisor.ca www.advisorimpact.com www.businesstransitions.comwww.headspringconsulting.comwww.valuationresources.com

advisor.morningstar.com

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Register today at www.tdadvisor.com

Advisor Dedicated Web Site

Business building tools Product information Videos Events

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The information contained in this presentation has been provided by TD Asset Management Inc. (“TDAM”). The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does The Toronto-Dominion Bank, its affiliates, subsidiaries or related entities, nor TDAM assume responsibility or liability for any errors or omissions in the information or for any loss or damage suffered.

TD Mutual Funds is a trade-mark of The Toronto-Dominion Bank. TD Asset Management is a licensed user.

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