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To Grow Through Acquisition, Sell Your Own Practice First

Over the last 11 years I’ve attended and participated in dozens of conferences and break-out sessions on the topic of M&A within the wealth management industry. When I am speaking or as a panel member, I often kick the session off with these questions: “By show of hands, how many buyers are in the audience?” Most hands go up. “Keep your hands up. How many have executed one transaction?” A few hands stay up. “How many of those have executed more than one?” One hand stays up, maybe.

Why the drop-off? Why are more deals not getting done? We know the stats: The average owner of a wealth management firm is around 60, and typically only 20 percent of advisors have a binding and credible succession plan in place. Stoke these demographic trends with the recent DOL ruling, relatively easy access to capital, and a bunch of willing folks with their hands still raised as buyers. Why do so few deals get done? Schwab reports that there were 84 deals last year, a record year, up 56 percent from 2014. Regardless of how many registered independent advisors you think are worth buying and whether you think Schwab counted every single transaction, we are talking less than 1 percent of our industry transacted last year, in a “record year.” What’s worse, if you back out the deals involving the serial acquirers (United Capital, Focus Financial, etc), you could cut that 84 number in half.

So, what is the difference between the serial acquirer and the local RIA?

  • Structural platform resources: scalable client experience, technology build and management, marketing and growth resources, compliance, staff training, and so forth 
  • The ability to stoke big up-front checks
  • Capacity to scale locally/regionally to facilitate additional acquisitions and recruiting
  • Resources to transition and integrate clients
  • Dedicated teams spending their work week dedicated to sourcing, evaluating and closing transactions
  • The possibility of the underlying equity being worth more than the alternative 

For the RIA who is attempting to acquire, the distinct advantage is being local and having a personal relationship(s) with would-be sellers. But, in most cases, independent buyers can’t compete with the list of advantages above. So, ironically, and self-servingly so, to be a buyer, you may need to be a seller first. Selling to a large, resource-rich firm combines your local power with your new partner’s financial power:

  • You remain the face of your practice locally; you retain the ability to put your personal selling and relationship-building skills to good use.
  • You now have the resources and heft of a national brand added to your acquisition pitch.
  • You still get to select the practices to approach, choosing the people with whom you have the best fit as partners.
  • You now have all the financial resources of the large, well-funded firm behind you, instead of personally guaranteeing transactions.
  • Leverage the acquisition team, leaving you free to run the region, build relationships and pursue fresh opportunities.

It might sound illogical to sell in order to buy if your desire is to grow a practice under your own brand and control. But, if by selling your practice you join a team that allows you a great deal of operational independence, you gain more than you lose. You turn competitive disadvantages into advantages when seeking to grow through acquisition.

The trick, of course, is to find an acquiring group that has the right balance of financial power, local control and strategic fit. That is homework you would have to do, but it is probably worth the time and effort to see if that fit exists.

Matt Brinker is head of national partner development at United Capital. Follow him on Twitter @mkbrinker.

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