Practice Management

Avoid the Million-Dollar Mistake


Written by Kronos Technologies on May 09, 2018

Avoid the Million-Dollar Mistake: Making a business case to buy a book of business

Recently Kronos conducted a Best Practices Webinar with George Hartman Chief Practice Officer at FindBob and Kronos’ own Chief Customer Officer Ray Adamson. During their “Succeeding at Succession” conversation Ray shared a story that highlights the importance of being objective and building a business case before you buy a book of business or make any significant investment. 

Here’s how he helped an advisor avoid a million-dollar mistake by asking them to consider one vital question.

An appealing opportunity

Ray had spoken at a President’s Council meeting and after his presentation was approached by an advisor looking for advice. Barb had been in the business for almost twenty years and was looking to grow her already sizable client base. She had already been in discussions with another advisor who looking to transition out of the business. Barb wanted Ray’s advice on whether she should make the sizable investment in acquiring the other advisor’s book.

As Ray said, he had no problem with advisors buying books of business as part of a growth strategy. And, he didn’t want to know how much the book would cost. Instead he was interested in the WHY behind Barb’s desire to purchase the book.

The key question

Ray asked Barb the fundamental question to be considered before purchasing a book of business: “Have you made a clear business case for why you want to buy?” He told her to think about what she was willing to pay for the book. If, for example she was going to spend $100,000 on buying a book, what kind of return could she realistically expect on that investment? And conversely, and perhaps most importantly, what would the return be if she invested a similar amount in her own business? What results could she expect to see if she invested in technology, hiring staff or bringing in partner advisors? With a much larger marketing budget what kinds of returns could she expect? How many new clients might she reasonably bring in? What if she hired staff she could delegate admin tasks to, freeing her up to spend all her time in front of clients.

The bottom line was, which investment would give a better return?

The business case

Ray and Barb began to talk through her rationale for the purchase. The book of business she was looking to buy had 950 clients. That’s a good-sized book and would be a significant addition to Barb’s practice. But had she really thought through what acquiring those new clients would mean? Ray wanted to know, “How does the new client base map with your existing client base? Are they similar or different? What are the service levels going to be?”

Barb had already looked at the book of new clients and discovered that the new business had nine clients that fit her ideal client profile. And, she really wanted to work with those nine. The key question was, were those nine clients (and maybe another thirty who were a somewhat good fit with her ideal client profile) going to be worth the purchase? The crux of the business case became, would she generate enough business from those ideal clients to cover the cost of the purchase and then the ongoing costs to serve the entire book? After all, as Ray pointed out, “Now you’ve got 941 clients that someone has service, even if just reactively. How will you do that? What will it cost?” With just one admin assistant, plus a junior advisor Barb admitted she was struggling to manage her own business as it was, and those new clients would pose a problem.

At the end of the conversation Barb decided to go away and more closely examine the costs and income opportunities the acquisition would present, versus the costs and potential revenue if she invested in her current business. Her business case would include both the acquisition costs and the ongoing costs to service the new clients. And she could use her Kronos Finance CRM to fully segment the new client base, define service levels for each segment, and get a true picture of all of the business written with all of the carriers for each client.

Wrap Up

Several weeks later Ray ran into a wholesaler who worked with Barb. He said, “Thanks for the work you did with Barb. You saved her from spending high six-figures to buy that book of business. When she used the CRM to segment the client base and put numbers against what it would cost her to ramp up to service all those new clients she realized how little sense it made. The whole thing would have ended up costing her money month after month. Instead, she chose to make a reasonable investment in her marketing operations—and if she does it well she feels she’ll attract far more than the nine clients she really wanted, without the headache of the 941 she didn’t.


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