What to Consider When Selling Minority Stakes in Your Advisory Firm

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Selling a minority interest in an investment advisory firm to an external investor is a strategic decision. It can bring growth, capital, and expertise to the business. However, this process involves complex considerations, from selecting the right investor to negotiating the terms of the transaction. These considerations must be carefully analyzed, particularly since the minority investor will typically want some say in the advisory business given the need to protect its minority investment. Making mistakes in bringing on a minority investor can lead to adverse outcomes and a potential business divorce.

In this article, I will explore the key considerations for investment advisors when selling a minority interest in their firms to maximize the likelihood of success. I discuss how to choose the right investor, provide a blueprint for the process in negotiating and closing such transactions, and suggest key terms to negotiate with such investors.

How should investment advisers approach selecting the right minority investor for their firm?

Selecting the right external investor is a pivotal decision that can shape the future of the investment advisory firm. Here are some key factors to consider when selecting the appropriate investor: