Hoxton Life

The Truth About Selling Your Financial Planning Business – What You Need to Know - with Tom Maddison

• Hoxton Wealth

Share episode

Selling your financial planning business is one of the biggest decisions you’ll ever make. It’s not just about numbers—it’s about your clients, your team, and the future of everything you’ve built.

In this episode of The Hoxton Life Podcast, I sit down with Tom Maddison, Acquisitions Director at Hoxton Wealth, to talk about:

  • Why more financial planning business owners are selling right now
  • The biggest concerns when considering an exit (and how to navigate them)
  • Why private equity-backed consolidators aren’t always the best option
  • How Hoxton Wealth is doing things differently—growing from 11 to 50 staff in the UK in just 12 months
  • What financial planners need to do to prepare for a sale
  • How we ensure a seamless client and adviser transition

If you’re a financial planner thinking about your exit strategy, this episode is a must-listen.

Listen or watch now on YouTube.

Get in touch:
Thinking about selling your business? Let’s have a conversation. Reach out to us at Hoxton Wealth or connect with Tom Maddison on LinkedIn.

Ready to start your international financial planning career?

Hoxton Wealth is looking for ambitious individuals ready to take their careers to the next level. Whether you're interested in international financial planning, compliance, client servicing, or marketing roles within the financial sector, we offer unparalleled opportunities for growth and success.

Don’t miss a beat! Subscribe to our YouTube channel to watch full podcast episodes featuring insights from those that work for Hoxton and some of our special guests and partners. Stay connected by following us on Instagram, Facebook, LinkedIn, and X for more exclusive content.

Curious about our career opportunities? Visit our website to explore open positions and learn more about joining the Hoxton Wealth team. Your journey in international financial planning starts here!

For sponsorships, partnerships, or media inquiries, reach out to us

Speaker 1:

It is becoming increasingly more difficult, time-consuming and audacious to run a financial advisory business Tom Madison Acquisition Director of Hoxton so my responsibility is to provide the holistic M&A process from initial conversation through to completion.

Speaker 2:

How much success have you had so far?

Speaker 1:

Last year was our first year of Equisitive Growth and we completed on five acquisitions, with adding roughly £300 million of assets under management to the company.

Speaker 2:

American companies are coming over. These paid-back American companies are coming over. Why are they coming over to the UK so much and looking at our businesses?

Speaker 1:

The valuations are particularly more excessive in the American market than they are the UK, so they have that arbitrage of purchasing assets for cheaper. Is it a tough?

Speaker 2:

competition.

Speaker 1:

It is. It's very tough competition. You know there's 30 plus private equity-backed acquirers within the UK market, so every selling party we come up against they may have had conversations with five to 10 firms. They're trying to achieve five billion by 2028, two and a half billion of the cost of growth. And again we're prioritising the right companies and not just growing for the sake of companies.

Speaker 2:

So, tom, thanks for joining me today on the Hoxton Life podcast. It's our very own podcast here at Hoxton Wealth and you're our very own acquisitions manager. How are you doing? Very well, thank you and pleased to be here. Fantastic, why don't you kick things off, tom? Just tell us a little bit about who you are and what you do and how long you've been in the business.

Speaker 1:

Yeah, so Tom Madison, acquisitions director of Hoxton. So my responsibility is to provide the holistic m&a process from initial conversation through to completion fantastic.

Speaker 2:

So you're out there talking to businesses who are thinking about selling and your position in hoxton wealth as the company to engage with absolutely fantastic. How much success have you had so far?

Speaker 1:

yeah, it's so. Last year was our first year of acquisitive growth and we completed on five acquisitions, with adding roughly 300 million of assets under management to the company, and many more to come in this year Fantastic.

Speaker 2:

So what is the market actually looking like at the moment?

Speaker 1:

Yeah, it's a very interesting market. There's 5,000 independent financial advisory firms within the UK. The average age of a business owner is roughly 60, 58 to 60 years old and with the increased regulatory pressures you know we've experienced RDR, we've experienced MIFID 2, and now consumer duty it is becoming increasingly more difficult, time-consuming and odious to run a financial advisory business and there's articles on the FT Advisor saying within the next couple of years, 33% of those 5,000 firms are looking for exit opportunities.

Speaker 2:

So are you quite busy, To say the least? Yes. How are they finding out about you then? How are you sort of approaching people? Are you doing some marketing? Are you getting introduced? How does it work with you then?

Speaker 1:

Yeah, so it's multiple avenues. Ultimately, we're working with introducers. For example, ifa acquisitions we completed on two firms through their introductions this year, but then also through yourself, sam. Hopefully we'll be doing a lot more content and getting our name on the industry.

Speaker 2:

Okay. So a lot of business owners are really interested in the multipliers. How much money are they going to get for their business? Multiples of profit, multiples of recurring income. So what does the market look like at the moment? What should they expect?

Speaker 1:

So ultimately it depends upon what the selling party wants. So there is the private equity-backed vertical integration plays where ultimately the valuations are incredibly generous but they are contingent based. So they're contingent on moving their assets to the buyer's platform, to the buyer's discretionary fund manager, to their model portfolio solutions, and they have to do that as quickly as possible to achieve those high valuations. And they have to do that as quickly as possible to achieve those high valuations. And for a couple of examples on where those valuations can be, range from 6% of assets. So if you charge half a percent on an ongoing basis, that's 12 times, which is incredible, and it can range down to five times within six months of that recurring income.

Speaker 1:

However, that's not the right fit for every selling party and for their clients. So a lot of firms go to the independent marketplace where they know they're not going to get as high penny as that for the practice. But there's going to be more cultural synergies between the buyer and the seller and more the right firm and the right home for their life's work. So where those levels are, there's really two, as you alluded to two types of valuations there's normalised EBITDA multiple or the old-school recurring revenue multiple, and where there tends to be for the recurring revenues, typically three to four times, albeit that model is almost redundant because any acquirer now looks at it from a profit perspective and when I'm having conversations with selling parties, I always say it doesn't matter. On the methodology of valuation, what matters is the pound, shilling and pence that you're going to receive. And so, in regards to the profit-based valuation models that can be anywhere for the high-quality businesses, the ones you want to acquire, six to seven to seven and a half times.

Speaker 2:

Nice. Ok, so we're looking at some quite high multipliers then. Really Absolutely Nice one. So actually we were having a conversation earlier, weren't we some of those american companies that are coming over, these p backed american companies that are coming over? Why are they coming over to the uk so much and look at our businesses?

Speaker 1:

yeah, so the main reason that they're coming over is the age, demographics of the of the retiring uh principles and the arbitrage that they can receive. You know the valuations are particularly more excessive in the american market than they are the uk, so they have that arbitrage of purchasing assets for a lot cheaper.

Speaker 2:

Okay, do you come up against them quite often, is it quite, is it? Is it a tough competition, or it is.

Speaker 1:

It's very tough competition. You know there's 30-plus private equity-backed acquirers within the UK market. So every selling party we come up against they may have had conversations with five to ten firms and they look to narrow that down and get offers from two or three and then, if that's in the right ballpark it's all about cultural synergies. What your integration strategy is. What's life going to be like for the clients post integration? What's life going to be like for the employees?

Speaker 2:

and then they choose from from there how important is that though the cultural stuff and the employee handover and the client journey and the client handover is that a big deal when it comes to businesses selling?

Speaker 1:

most definitely I always say it's, you know, one factor to purchase a business, it's another one to successfully integrate it, and one of the key differentials between a successful acquisition and not is the cultural alignment between the two firms. How quickly can the staff align with what the acquirer is wanting to do and how quickly can the clients buy into the new firm, to their new advisor, to the new team moving forward? So there's been quite a few examples where private equity backed acquirers have quickly consolidated. They've bought lots of different companies, but they haven't harmonized that culture, they haven't had a central cultural fit into the company, they've kept them all as separate entities and ultimately they've struggled quite significantly. And so, from Hoxton's perspective, I think we've came to the market at very fortuitous timing. We've seen the increased regulatory pressures, such as the defined benefit transfer market. We've seen the good, the bad, the ugly, and we've created our strategy, amalgamating the best practices and making sure we stay away from, ultimately, what hasn't worked nice.

Speaker 2:

Why, you know why, should people actually consider hoxton when they're selling their business, then what's the first off? Actually, I want my knowing what the hoxton strategy is really. Well, why are we? Why are we acquiring and what is our strategy when it comes to to acquiring?

Speaker 1:

yeah, so it's. Our strategy is twofold, I would say um firstly. Firstly, we see a fantastic opportunity to be a leading firm providing and delivering on lifestyle financial planning at scale within the UK. You know there's some great companies out there. There's not so many doing it at scale with that lifestyle financial planning.

Speaker 1:

So we want to be able to do that with as many clients as possible and get as wide scope within the UK. But we aren't a consolidator, we're not purely purchasing assets for the sakes of purchasing assets and adding AUM. We're wanting to choose strategic fits for our requisitive growth and that will be centered on those cultural synergies and it will be centered on having a small number of what we call hubs throughout the uk. So rather than having you know, 10, 15, 20 offices dotted here, there and everywhere, we'll have core hubs that we can travel and see clients from there nice, okay.

Speaker 2:

So how do you determine that Hoxton's the right home, then, for people looking to sell their business? What's the sort of selling points as Hoxton?

Speaker 1:

Yeah, I'd say, first of all, we might not be and nor do we want to be we're not a one-shoe-fits-all type of offering. We know what we're good at, we know what we want to achieve and that might not be the right fit for for a lot of people. But we are purely concentrated on holistic financial planning and we, in regards to the right fit, you know we're trying to achieve five billion by 2028, two and a half billion of acquisitive growth and again, you know we're prioritizing the right companies and not just growing for the sakes of of companies. But I'm almost gonna flip that question on the head. Sam, you're in a very unique position where you do your podcasts. You had your old recruitment company. You've been in and seen lots of successful firms within the uk market. What do you believe differentiates hoxton to to the rest of the industry?

Speaker 2:

for me it's the international aspect so there aren't many international firms out there with multi jurisdiction that have also got a uk offering. Um, as the world becomes a lot smaller, people are moving around. That to me, is hugely attractive. So one of the one of the yeah, one of the massive us pieces for that is if you've got clients and your clients are moving around, you can keep a hold of them. So that's huge. But if you're a financial planner as well and you want to advise clients from the us, uh or um, come over to dubai and start working on a tax-free basis, or you might want to go to Australia or a business that has that network that you can actually do it. So for me that was one of the biggest selling points. Like, obviously I'm here in Dubai, it's tax-free, but if I want to go back to the UK I can.

Speaker 2:

And being over in Dubai and I was just like I kind of got my head around it right. It was like seeing advisors that were from the uk in dubai earning tax-free, but advising clients that were in the usa, in the uk or in australia, and that with me was that sort of blew my mind a little bit. And then when I looked at it and it was like so you are a truly fee-based business? Yes, and it's like, come on and like, the more I looked into the bonnet and the more I looked at it I was like, oh my god, you, my God, you actually are. And for me it was just totally mind blowing because I always kind of saw the international market as being a bit cowboyish. And this is definitely, definitely different.

Speaker 2:

And as soon as I started talking to Chris and I walked into what I call the heartbeat of the business, which is Dubai, the energy there was insane. And the amalgamation of the technology and the amalgamation Mate tech. So, and the amalgamation of the technology and the amalgamation mate tech, that was another thing. Technology you look under the bonnet, you got the tech. It's insane, it's crazy. And you know the emphasis there and the energy that they're putting on the app, especially this year, and hoping to get this one day client proposition is game-changing. And again, when you're an international firm, tech-driven, tech-driven wealth management company, going to be doing is just decreasing the amount of time it does to deal with, to do business and the clients that you have can actually amalgamate their assets into one place and track it all within an app and it's instantaneous and clients can get updated. Advisors can get updated.

Speaker 1:

For me, it's the same the value add that brings when you purchase a business and you integrate it yeah, and within a week they've got this app. Yeah, all their assets are populated there with 24, 7 net worth trackers. It's, it's incredible. But I think what's really impressive as well is it's not just the focus on technology, it's the combination of tradition and it's a people's industry. We will see clients face to face. We have that personal touch. They've got the benefits of the tech in the background, but you know it's our implementation of from a client's perspective. Hoxton isn't matt the advisor. You know they are a client of hoxton wealth and they have a whole suite of people at their disposal working purely on their behalf. You know they've got an advisor, paraplanner, administrator, client liaison manager who will all be in touch to guide their futures and customer service advisors right.

Speaker 2:

We're sort of bringing that in next year with the whole sort of net promoter score being such a big deal, and ensuring that we are bringing new clients on. Whether they're through acquisition or whether through inorganic or organic, it doesn't really matter. We want to keep a hold of those clients and give them the best experience they possibly can. So having a net promoter score for us is a great indicator that we're doing a great job and it means that we are doing everything we possibly can to keep hold of those clients and the investment in that is huge. And of those clients and the investment in that is huge, huge. Yeah, and that for me is massively important. It's doing right by the clients treating customers fairly. It's. It's just a. It's just the way it should be.

Speaker 1:

The customer and client experience should be exceptional and what's the biggest risk for these retiring principals who've run, operated, developed their own business for 20, 25 years? They've had clients from the beginning. They've grew with the business. They look after the intergenerational planning, so their kids, their grandkids, and they want the right horn with the company who will put the client first 100%.

Speaker 2:

So what about people considering selling their businesses then? What type of seller do you come across at the moment?

Speaker 1:

Yeah, so it's. It's. It's changed actually. So it was probably five years ago. It was typically just a retiring principal wanting the right home to look after their life's work. But now I touch on it briefly with all the regulatory pressures there's becoming more and more I listen to past podcasts. You like to put them as accidental business owners and what they're finding is they're spending more time doing the compliance reports, actually doing the operations, running the company. When their advisors ask how, you know they want to get back to doing what they're good at, what they enjoy, and that's been in front of the client. So now there's more and more people wanting to merge their business into hoxton. We'll take all those corporate operations away from them. We've got a finance team, compliance team, and they can purely do what they enjoy and just look after their clients accidental business owners.

Speaker 2:

Yeah, it's interesting, isn't it? That whole one, the idea that you want to run a business and then, when you actually end up doing it, you're just like, oh my god, this is not for me, not what they thought it was. Yeah, they enjoy the going out, they enjoy the hunt, they go, enjoy going out and winning clients. They enjoy just focusing purely on the clients. When you're wearing those multiple hats, it becomes so stressful. Absolutely no, I love it, okay. So like, let's say, for example, someone's listening to this podcast now they're checking us out. They're interested to um, they're interested to talk to us about um selling their business to us. Okay, what should they do to prepare themselves for that call and why?

Speaker 1:

one of the biggest mistakes I see a lot of selling parties do is only when they're at the point where they can emotionally accept that it might be time to give up their business, they start thinking about it. The best thing a principal owner can do is prepare their business for a sale, even if they're not contemplating selling their business. So what really increases the valuation of a company? Repair their business for a sale, even if they're not contemplating selling their business. So what really increases the valuation of a company is how slick their operation is. What no acquirer wants to do is purchase a business and their assets are on 30 different providers. They've got paper-based files in a huge storage unit and multiple cabinets, files in a huge storage unit in multiple cabinets. They need to take their time to get their business in order in order to be able to present it in the best light, make it as attractive as possible, and that maximises their valuations.

Speaker 2:

So we don't have a fire sale, do you at the end of the day? You don't want to be doing it at the last minute and then Not at all. So when you say get everything in order, can you sort of break that down a little bit and sort of bearish?

Speaker 1:

yeah, of course and you know again, uh, consumer duty has really horned in the importance of this. You now not only need to do a great job for your clients, you need to be able to document that you're producing enough value to warrant what you're charging these clients. So it's having the correct processes and procedures in place, the correct servicing agreements. I would also say there's a lot of historical businesses that charge half a percent. It's becoming incredibly more difficult to run a profitable company at half a percent. To run a profitable company at half a percent, um you, there's not as much uplift potential for an acquirer, but it's significantly easier to integrate if they increase their ongoing advisor charge. I think the average is 0.75 to 1 on the industry now, so you may receive a smaller multiple. If you do that, however, the pound, shillings and pence is going to be more because it's a smaller multiple. If you do that, however, the pound, shillings and pence is going to be more because it's a smaller multiple of a higher profit margin ultimately.

Speaker 2:

Let's say, for example, I'm looking to sell my business and I'm talking to you what should I possibly avoid? Well, you know, what should I avoid? What mistakes might I make at that in the conversation? Yeah, in that conversation?

Speaker 1:

I would always say honesty is the best policy. You do extensive due diligence when you purchase a firm. So if there's any skeletons in the closets at all, it will come out in the woodwork and you'll have wasted a significant amount of time, significant amount of energy, cost and resources going through that process. So be open and honest, be upfront. I would avoid speaking on the valuations and initial call. What that initial call should be is basically do we like each other? Can we see each other working? Is there a cultural alignment there? And then go over high level you know items of the business list and see if there's an overall match and then from there, that's where I would typically do a offer data request and that's where I get a good understanding of the company and any more specific and technical questions can can be addressed at that stage all right, great stuff, it's okay, we've got that stage, then let's let's just kind of give somebody a bit of an understanding of what the process actually looks like for an acquisition Before we do that.

Speaker 2:

what's the usual time scale, though?

Speaker 1:

So there's two methods to buy a business. You can ultimately do an asset purchase or share purchase. An asset purchase is quicker, typically because you don't need to go through FCA change of control approval. They state that it's a 90 working day for that approval, so it can take some time. Also, with an asset purchase, you don't take on the liability for all their historical advice. So that means there's less risk and with less risk. There's less risk and with less risk. There's less due diligence and the legal contracts aren't quite as extensive. So for asset purchases, you're talking anywhere from three to six months, depending on complexity and size of the firm, and then for share purchases, realistically you're talking six to twelve, if not nine to twelve months?

Speaker 2:

okay, okay, cool. So the process then. What's the process? What would I be? You know what process would I go down if I was looking to sell the business?

Speaker 1:

Yeah, so we would have initial meetings. That could be one, two, three initial meetings. From there we look to send an offer data request. My approach and the Hoxton approach is we want to have enough understanding of that company ahead of placing an offer. Some firms out there may put a lavish offer on the table but then when it comes to due diligence, they may say we didn't know about X, y or Z, and then so the offer gets the fish and chip approach. It gets chipped away.

Speaker 1:

So we would send that request up front. It's by no way is a due diligence amount of information. It's everything as a business owner you should have within be able to provide it within a day. But then I will speak internally to the board, present the opportunity, put an offer on the table and if that offer's in the right ballpark, that's where we would set up a consultation integration meeting where I'd bring our UK managing director, jonathan Jay. That's typically in person. We'll show them around the office. We'll speak more specifics on the integration strategy, what's actually involved, what are the next steps within the due diligence and what do we need. How long will it take? All of those elements and from there, if they accept our offer, we go to a heads of terms agreement and that ultimately outlines the parameters of the acquisition and it's the foundation for the solicitors to to draw up the legal contracts so how quickly would I get my money?

Speaker 1:

Yeah, so from there it's into due diligence. We break it down into legal due diligence, financial due diligence, compliance due diligence and commercial DD. That process typically takes two to three months. It depends how quickly the sell side can provide the information. We can, you know, review it within a month quite, quite easily and in the background. That's where the solicitors will be working on the contracts and you know, if it's a share purchase, the fca change of control will be you know, processed and waiting for approval on that.

Speaker 1:

So really, from heads of terms, you're talking three to six months on average until we can complete, and when we complete you get your initial payment Okay cool, so you say the initial payment.

Speaker 2:

When would I get the rest?

Speaker 1:

Yeah, so typically there's always deferred considerations. That can either be two or three years, and yeah, so you have an installment year one, year two or year three. There are some mechanics around that. So, depending on if we receive the income that we thought we were to receive, you get paid in full. If we don't quite receive that, then there is clawback mechanisms in there. Okay, cool.

Speaker 2:

So I'm selling my business. I'm happy that the acquirer has my best interests at heart. You're happy that you're getting what you want. The most important thing to me is the client as well, so tell me a little bit about the client experience. What do we do to make sure that there's a really great handover and that the client gets looked after in the process, and that's key and it's all on communication.

Speaker 1:

You know these clients will predominantly have been with the selling party for 5, 10, 15, 20 years 20 years. Nobody likes change. Humans are creatures of habit. So it's our job and our responsibility to make them feel as comfortable as possible and make them understand that there's a clear, defined process and when they will be getting seen. So how it all works is the retiring principle or the selling principle?

Speaker 1:

If they're staying on, they will provide a letter communication to clients explaining the reason they're selling, why they chose Hoxton, the due diligence they've done and the reasons why Hoxton's the right person. They will also go on to say they've met the advisors and they've chosen this advisor or that advisor to look after them personally, moving forward for reason x, y and z, and we follow that up. We send a welcome email. It'll take them over to a dedicated landing page where there'll be a video of Jonathan Jay introducing them to the firm, explaining when that first introduction we meeting is likely to be taking place. And really what we want from the principal is they to be involved in those initial meetings and bridge the relationship if it's to go to a new advisor and from there it's our responsibility to book in annual reviews and we're confident in our ability to take the client forward. Okay, great stuff all right, great.

Speaker 2:

So what can people do to reach out to you then, tom?

Speaker 1:

yep, so they can reach out to me on linkedin. Um, they can go direct to to hoxton, go to yourself and you would pass them on to to us. But even if you're a year away, two years away, I'm always happy to have a chat, establish a relationship. Provide you know some stories of what's worked well, what hasn't worked well. If you're preparing your business to sale and, um, yeah, always good to hear from anyone fantastic.

Speaker 2:

And what's the pipeline looking like the pipeline?

Speaker 1:

is ever growing. Um, we are. We're looking to do another four firms by March this year. That'll be adding another 250 million of AUM and striving for about three quarters of a billion this year. No pressure, busy boy. Yeah, the airline's getting worse and worse as the days go on.

Speaker 2:

Also, I've gotten to know you since you've been over here into bike because you've been over here for the hoxton wealth kickoff session. It's a fantastic couple of days training and development and getting everybody internationally in one place, which has been wonderful to meet people. I've met some fantastic people. Um, but you're an international man yourself, aren't you? So you, you don't live in the uk, but you, you work for a UK firm or you work for an international firm. So tell us just a little bit about your setup at the moment, because, again, it's that that's the uniqueness of being an international firm, absolutely.

Speaker 1:

One of the huge benefits is I'm currently living in Croatia with my other half, so we both predominantly work remotely, and we thought we're getting married in 2026, so we thought why not go to Europe, enjoy the Mediterranean, enjoy the sun, the sea, make the most of it whilst we can and it's a two-hour flight to hop back to the office to meet these principals and, yeah, make the most of the lifestyle.

Speaker 2:

Well, fantastic. I hope you're enjoying yourself Well, tom. It's been an absolute pleasure meeting you and I'm sure we're going to get lots of people interested in selling their business to hoxton, without a shadow of a doubt. The more we grow, the more marketing we put out, which we're investing heavily in this year, which is another huge benefit to any firm that's thinking about joining the business. I mean, I don't think I've come across a financial planning company that have such a huge appetite when it comes to creating new and interesting and innovative content marketing strategies, and this year we're investing quite heavily in that. So, again, any kind of firm that's coming in and they're thinking. You know we really struggled with doing marketing. We are literally light years ahead, whether it's paid for advertising, social media, podcasting, we're stepping into YouTubing, webinars and events, so there's so much stuff that we're doing that's going to add value to those businesses that are coming on board as well.

Speaker 1:

And I think even for their clients. Their biggest concern is how are their clients going to feel being a client of Hox and Wealth? And as soon as they understand what's happening, we're taking over their policies. We're looking after them moving forward. What's happening we're taking over their policies. We're looking after them moving forward. They can get themselves comfortable by viewing the podcasts and actually seeing the people behind the scene, which is quite unusual.

Speaker 2:

Actually, it is unusual. It creates a deeper relationship For sure. Fantastic, Tom. Thank you so much for your time today and good luck with 2025.

Speaker 1:

Thank you very much. I'm sure you're going to smash it, mate, look forward to it.

Speaker 2:

Cheers 2025. Thank you very much. I'm sure you're going to smash it, mate. Look forward to it, cheers.