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In my business owner practice we work with our clients to become passive owners in their businesses.  We help them become operationally irrelevant in their business which allows the owner to focus on strategic issues and not spend time on operational or customer issues.

In the financial services business becoming a passive owner is a much more difficult proposition.  Our industry is a personal services industry.  Our clients work with us because of special skills we bring to the table.  We worry what will happen to our client relationships if we stop talking to our clients and move away from being their go to advisors.

This is a conundrum that firms that want to sell to a third party at significant multiples must face and successfully handle.  A buyer is interested in your clients and the recurring revenue your firm can provide.  They most often aren’t really interested in you or what you bring to the table.  Sophisticated buyers understand that you eventually will leave and in many instances your personality won’t fit in well with the acquiring organization.

If you are interested in maximizing the value of your firm when it comes time to exit your business moving to a passive ownership strategy is a great interim step.  Not only will you have an opportunity to make your firm tactically and strategically excellent, but you’ll be able to prove to a potential buyer that you are irrelevant in the business and because of this the buyer should pay you much more money.

Some of the things you can do to help get your firm ready for your move to passive management is:


  • Have a written operations manual for how all customer service activities are handled.
  • Make sure that you allow other advisors in your firm to work with all your clients.  As you bring these advisors into the conversation with you allow them to take over as primary relationship contacts.
  • Make sure you have strong covenants not to compete with all employees in your firm.  You can’t stop them from competing with you, but you can stop them from taking your clients if they leave.
  • Make sure you have a marketing strategy that brings in new business without your direct involvement.
  • Make sure everyone in your firm understands what niche or niches you service and don’t allow them to wander outside your stated niche.
  • Systemize everything in your business.  Buyers love systemized businesses and you’ll be able to back off if everyone knows what to do and what is expected of them.
  • Develop key performance indicators and share them with everyone in your firm.


If you take the time to move towards a passive ownership strategy you will find that you naturally put yourself in a position where leaving your firm will not be a scary proposition.  In addition, buyers will find your firm more attractive and if marketed properly will sell for a higher multiple with more upfront cash than the average firm.

Have you thought about pursuing a passive ownership strategy in your firm?  If so, I would love to hear about what you’ve done.  Leave a comment below or give me a call.


Josh Patrick


I’ve put together a Stage 3 Exit Readiness Report I would like you to have.  This personalized and complimentary report will help you understand the strong and weak points in your company.  To get this report click on the button below.



Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: enterprise value, valuation for wealth management firms, passive ownership

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