A Key strategy often overlook by Advisors-

AUM Carve-Out Strategy, A BIG DEAL

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2/ AUM Carve-Outs, amongst the most important strategies used by elite Advisors,

When done right - this application can offer huge advantages.

The real trick to a successful Carve-Out is to be in control of the transition and whether you are the buyer or seller

3/ It is critical to have a good understanding of the motivations behind the carve-out.

4/ What’s a Carve-Out

An Advisor may pursue the Sale of AUM Assets that is not perfectly aligned with their business.

Carve-Outs are often offered in different forms and with varying conditions.

5/ The most common carve-out opportunities come as a result of a few common scenarios:

1. Sale of Bottom Quartile Assets
2. Unmanaged AUM
3. Lack of Alignment
4. Personality Conflicts

Lets expand on these -

6/ Sale of Bottom Quartile Assets -

Senior Advisors who segment clients based on revenue and service levels, are often able to free up resources by selling lower performing and low revenue clients, i.e. bottom quartile of their AUM might not be as profitable to their practice

7/ Unmanaged Assets

as Advisors move to discretionary offering, some choose to carve out remaining unmanaged households to

- streamline their revenues and

- better align with their managed account strategies.

8/ Lack of Alignment

this could be linked to a number of different factors, the most common are situations where an Advisor / firm has changed their policy around household or revenue minimums etc.,

9/ Lack of Alignment

there may be an opportunity cost or revenue drag by keeping these clients.

10/ Lack of Alignment

Another scenario is that the Advisors has mostly transitioned to a fee based model portfolio operation and have remaining legacy accounts where the clients prefer a transaction type arrangement or are not interested in the model portfolio approach.

11/ Personality Conflicts

Advisors choose to carve out non core clients that are not considered core relationships to their practice, while this can be linked to various factors, the most common is personality differences.

12/ It’s astounding that few Advisors fully realize this as a revenue opportunity, and often choose to fire the clients that are not a fit or allocate less resources or poorly service these clients to the point that they eventually throw in the towel and move on their own.

13/ This is often the case with Advisors that have not fully profiled and segmented their clients, by failing to do this, they overlook the tremendous drag that poorly aligned clients can have on their business, and forego the potential opportunity to generate untapped cash.

14/ Pro-Tip

Smart Advisor choose to pursue Carve-Out transactions when they can achieve the highest value for lower value AUM.

Be patient, never sell AUM in a weak economic environment and during market correction

15/ As a Seller, AUM Carve-outs can be managed to create lucrative exits from assets/clients that may otherwise be low revenue producing or without a clear fit to your practice.

16/ Having a process is important - Use this simple 5 step process as a guide:

1. Decision to Carve-Out

2. Define Parameters - Why Sell

3. Select Clients for Carve-Out

4. Quick Sale approach or Nurture an Associate

5. Determine Valuation and How you Get Paid

17/ Take adequate time to be in a position of strength when you pursue the sale of AUM,

set clear expectations by evaluating the parameters around the sale,

i.e. have a process for selecting clients that will be included in the pool.

18/ Some Advisors go further by either operating a separate client service model for those clients that have been identified for a Carve-Out over a cool down period of time or hiring and nurturing an Associate to prepare for a lucrative sale.

19/ Selling AUM can build strong advocates within your firm and branch, and elevates your profile by offering younger Advisor an opportunity to fast track their growth.

20/ Sell AUM to Elevate your Profile

Segmenting clients is perhaps the number one advice given by high value business coaches etc. and most accomplished Advisors undergo the process of segmenting their clientele at some point.

21/ While this exercise is useful to clearly define service levels amongst different types of clients, segmenting offers tremendous value for dealmakers.

22/ They are able to clearly evaluate the monetization value of every segment of their business,

and

able to slice and group in many different ways.

More notably they are able to identify segments of their business that are not a perfect fit to their longer term objectives.

23/ It is our view that focused Advisors sell the segments that don’t fit and sell them at a “premium”.

The strategy involves finding a buyer that sees this as a pivotal asset to their own growth and would be willing to pay a premium.

24/ As an example, let’s say you run a discretionary fee only practice, but have a handful of stubborn clients that refuse to pay a fixed fee and instead continue to pay on a per transaction basis. While these may be good clients, they are not a true match to your long term plan

25/ As a result these clients would equate to a bit of a drag to your business and can be lower value clients in the long run.
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AUM Carve-Out Strategy, A BIG DEAL https://www.thechairmanscouncil.com/p/aum-carve-out-strategy-a-big-deal?r=cuuex&utm_campaign=post&utm_medium=web&utm_source=twitter

26/ Sometimes a great opportunity for you to help a young rookie advisor. Elevate the rookie advisors in your firm or branch by selling AUM to help them build their business, this will create advocates for your future transition to a competitor's platform

27/ New Advisors who were able to grow because you offered them an early opportunity to scale will forever be an ally, they will never seek to cannibalize your client relationships when you move to a competitor's platform.

28/ The Carve-Out approach is recognized as an important procedure for many elite Advisors,

because of the substantial benefit as a profitable mechanism to grow, while earning on non core AUM.

29 / Some elite Advisors use this as a part of their flywheel, i.e. buy to grow fast, sell to unlock cash.

30/ If you want to be a high performing Advisor you must re-invent the fly-wheel.

31/ Elite Wealth Advisors see the flaws in the firm’s old flywheel and some successfully focus on the opportunities that are created as a result of these flaws, exploiting these can be a profitable venture and but the techniques required are unconventional.

32/ The difference in mindset here is that, the elite Advisors hunt and grow internally, that is, they are not focused on attracting outside clients and AUM as a their primary focus like most of the industry.

33/ They grow their Revenues by acquiring assets internally from other Advisors seeking to retire or selling carve out AUM.

34/ Motivations behind the carve-out

When acquiring, minimize your risks by doing some homework, take time to understand the Motivation of the seller.

The first step is to fully assess the benefits of the transaction and, then get a full picture -

35/ Why are they selling,

Always look for blind spots - are they simply paring off the weakest part of their book, or are there regulatory, potential legal or other issues to overcome.

36/ Is there a potential to scale and capture more assets from underserviced or overlooked clients.

What are their expectations around the sale, is it reasonable?

Has the Advisor done any work ahead of time to prepare these clients for a transition

37/ Are there potential timeline issues, what is the priority of the selling Advisor

Are there other potential buyers, where’s your edge in the buyer universe.

38/ Carve-Outs can be Risky, but so is riding a bicycle!

39/ As a buyer of Carve-Out assets, there’s significant financial risk, reputational risk, time and operational resources required for successful completion of any acquisition.

40/ But when acquiring Carve-Out AUM from another Advisor, you must be especially prudent in your approach and carefully evaluate every element of the transaction, i.e.

The Chairman's Council is a Substack for Advisors. Our writing focuses specifically on AUM & Revenue Growth strategies.

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