three doors Dmitrii_Guzhanin/iStock/Thinkstock

Build, Borrow or Buy: What Every Advisor Needs to Know When Growing Their Business

Not all businesses are created equal, and how you run your business and how you got to where you are today are just as important.

By Amit Dogra

There’s a significant focus on mergers and acquisition in the advisory industry, and with valuations at an all-time high, buyers are coming from everywhere: banks, private equity, aggregators, consolidators, other registered investment advisors, the sources are seemingly endless. However, if it were that easy to receive a multitude of offers, then every advisor would be receiving multiple offers from various buyers and the transaction market would be in overdrive. The fact that this isn’t the case points to one question that often gets overlooked: how does an advisor become attractive enough to be pursued?

Many advisors think that size or total assets under management are all that matter to receive an offer. However, which would you rather buy: an advisor with $500 million in AUM, generating $4 million in top-line revenue with 80 clients, growing at 20 percent a year or an advisor with $500 million in AUM, generating $2.5 million with 160 clients growing at 8 percent a year? Not all businesses are created equal, and how you run your business and how you got to where you are today are just as important. So as an advisor, the question becomes how do you grow a firm that not only has a large AUM but also is profitable? Should you build, should you borrow or should you buy your way to growth?

How you navigate this question can be the difference between a very profitable business or one that’s capital and time intensive. While there are many services and solutions across the front, middle or back office of an advisor’s business, not all decisions are weighted equally. To better determine when you should build, borrow or buy, consider the following:

Build intellectual property. Choosing to build can be cost intensive and not always worth the time. However, if you are going to build anything, build something unique that differentiates you from other advisors. This doesn’t necessarily mean your investment philosophy. While it is a source of pride for many advisors and something to be proud of, investment philosophy is something that every advisor has and is not a significant differentiator. Buyers are looking for something they view as beyond normal. One example could be how you customize client experiences based on the client data you have captured. We all have been hearing about “big data” and the value of client information. Instead of having to mine data, the lifetime of experiences you have gathered from spending time with your clients over years of working together can be intellectual property. By simply paying attention to your clients and tracking preferences on restaurants, shopping history, political affiliations, travel habits and how they take their coffee, you can create an invaluable information set to better serve and retain your clients.  

Borrow nonessential items. When growing a business, the path to success is littered with cost decisions that can make or break your business. Borrowing nonessential items is an important step in maintaining profitability. These are things that are not core to your value proposition but are a commodity to your client. Don’t waste time trying to re-create something that exists and is good enough. Operational procedures or manuals, client segmentation tools, and profiling tools and questionnaires are examples of leverageable items. Smart advisors look to strategic partners to borrow or rent their business systems, reporting technology and monitoring software [JE4] because it’s cost-efficient and easy to replace, especially when you do not own it. 

Buy to “curb jump.” There are moments in life where time meets opportunity, and you must be prepared to take advantage of circumstances. The opportunity to move your business forward exponentially can be the acquisition of another firm, an emerging technology or solution that could change your business, or a key new hire. However, these types of opportunities are not always easy to spot, nor do they give you much warning, so it is important to stay open to what’s possible and why it could work. One advisor I know was traveling across the country to attend an industry conference. He ended up sitting next to a fellow advisor on the plane who was attending the same conference. After three days and two airplane rides together, the advisors decided that there was a succession opportunity to pursue and less than a year later they integrated their businesses. 

As with all opportunities, it’s key to remember that as a growing business, being flexible and staying focused on your true differentiators will keep your emphasis on what’s most important for your business (rather than what’s most convenient). Following the build, borrow or buy process can keep your business on the right path to long-term success. Keeping this thought framework in mind and being patient can help put you and your business in a better position for the long haul.

Amit Dogra is the CEO of Third Seven Advisors.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.