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Successful Indie M&As Require Direct Funding From Firms

Firms that lend from their own balance sheets to support advisor M&As have a greater incentive to identify the best matches between sellers and buyers.

Mergers, acquisitions and succession planning have become increasingly vital parts of the business life cycle for independent financial advisors. 

Merging or acquiring a firm, or being acquired, can accelerate growth, bring on a partner for succession purposes, monetize a business that has been built over decades, or establish a continuity plan to preserve the business in the event of death or disability. But navigating the process and myriad succession planning options is no longer a niche skill; for many financial advisors, it’s a strategic necessity.

Financial Advisors Want Firms to Step Up

In this environment, financial advisors increasingly want—and need—the firms they are affiliated with to step up and provide the resources to identify, structure and execute deals, as well as the expertise to position the new, combined businesses for long-term growth. These needs include M&A transactions that protect the value of an advisor’s life work via proactive succession and continuity plans.

The ability to integrate practice management capabilities, succession and continuity support for their financial advisors is crucial.  

But there is one additional step that firms should take to ensure they are driving the best possible outcome, and that’s using their own balance sheets to provide financing for the transactions.

Lending From the Firm’s Balance Sheet Drives Better Outcomes

Firms that lend from their own balance sheets to support advisor M&As have a substantially greater incentive to identify the best matches between sellers and buyers, and ensure that succession plans, integrations and long-term operations are optimal. It is literally the firm’s own money on the line.

Equally important, by combining succession planning resources with transaction financing, firms can help financial advisors monetize their businesses when they are ready, and on their own terms.

It’s also worth noting that firms lending from their own balance sheets typically provide buyers faster financing at lower costs than third-party lenders. This shouldn’t be surprising, as wealth management firms understand the capital needs of their affiliated financial professionals’ businesses, with no need to spend time doing extensive due diligence.

There is also no doubt that a process that simplifies and shortens the deal timeline also minimizes execution risk and increases acquisition capacity for buyers—all of which is critical for financial professionals who seek to capitalize on opportunities as a large percentage of financial professionals in the industry approach retirement age.

Peace of Mind With Default Buyer Capabilities

When it comes to continuity planning, firm-financed solutions are even more vital. For many independent financial advisors, their business is their most valuable asset, and in the event of an unexpected death or disability, they want to ensure that it will be transferred as seamlessly as possible to their beneficiaries. 

Helping financial professionals develop continuity plans is an essential starting point, but to provide true peace of mind, shouldn’t firms be doing more to backstop or guarantee a desirable outcome?

To provide that assurance to advisors and their families, it’s crucial for firms to combine contingency planning with the capability to identify a “just in case” buyer or, even better, step in and buy the business itself as a default option. 

Mastering M&As Is a Strategic Necessity

Becoming an M&A expert is unrealistic for most financial advisors. The M&A market in the wealth management space has become extremely competitive and sophisticated. The financing process can be complex and time-consuming.

With that said, financial advisors increasingly require expertise in M&As, whether for growth or continuity planning. Ideally, they should be able to gain significant value partnering with a firm that has the scaled expertise and knowledge to help them through this complex process.

Greg Cornick is president, advice and wealth management at Advisor Group, the nation’s largest network of independent wealth management firms.

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