2. Find the right personality fit.
Even under the right conditions, when the synergies are aligned and the personalities mesh, buying a practice is often a stressful, time-consuming process. Under the wrong ones, it’s still stressful and time-consuming, but it’s also nearly unbearable. Think about it this way: For at least a couple years, buyers and sellers are essentially a married couple. If spending a couple hours with an acquisition partner is difficult, the deal probably isn’t worth it—you’re only asking for headaches, and, likely, a divorce.
3. Read the fine print.
Most acquisitions begin with standard contractual language, only to introduce additional details that are customized to that particular deal as the transaction progresses. Make sure, however, that such additions don’t turn into a problem further down the road. For illustration, consider how fee-based revenue for managed accounts gets apportioned in these circumstances. If a deal closes on the 10th of the month, the seller should get the fee revenue for those ten days, with the buyer receiving the rest. But if this isn’t stipulated in the contract, the buyer could lose out, since deal closings rarely occur on the same day fees are generated.
4. Without the proper bandwidth, the deal will fail.
It’s very difficult for a one- or two-person team, even if they have the resources, to successfully purchase a large book of business. Such practices typically have to be operating at full tilt just to service their own clients. It’s unlikely, therefore, they could incorporate new ones without getting overwhelmed. And should that happen, freshly onboarded clients are more likely to leave—a losing proposition for both the seller, who will forego their earn-out, and the buyer, who will have seen their newly acquired asset decline in value.
6. Overcome DOL-related concerns.
Given the regulatory changes that are in store, buyers need to know whether their potential acquisition targets will remain relevant in a post-DOL world—or at the very least whether they have a fully thought-out plan that allows them to adapt to the coming environment. Otherwise, it would make very little sense for an advisor with a book full of fee-based business to buy a practice comprised mostly of transactional relationships.