Better Together Than Apart: How to Merge a Financial Advisor Practice

We’ve all heard the numbers; there were 168 RIA firm deals that happened last year, amounting to a nearly 22% increase from 2016 (Echelon, n.d.). RIA firms are getting gobbled up by a variety of consolidators: from private equity firms, their RIA firm peers, or RIA consolidator firms such as Focus Financial. But getting the merger done is where the challenge begins; post merger, how do you sustain and even grow the level of profitability of the combined entity? This hasn’t always been done well in the past. As we’ve successfully tucked in 16 firms over the last 15 years, we do happen to know a thing or two so that the combined entities are better together than apart.

What About When the Honeymoon is Over?

If marriage were simple then none would ever end; hence the phrase “the honeymoon is over.” Keeping all parties happy post merger is no easy task. But in our experience we’ve found there are a few variables you can control that will help keep peace in the valley.

Anyone successful at partnering will say that commitment and compromise are thought of as the solution for all partner issues.

Yes.

In theory that’s true. The reality is that in an RIA merger, you have different cultures and ways of operating that your clients have gotten used to and expect. Maybe even – dare we say the “e” word – some egos may come into play. Transition is a pretty disruptive thing for a financial advisor. You’ve grown successful doing things a certain way, and now all of a sudden you’re expected to change. It’s like asking a leopard to change its spots.

Problems transitioning your practice are expensive to have. They may lead to loss of morale, confusion, disagreements, lost engagements and lower profitability. The truth is that always having to concede on things –when you feel you’re the one who is right– only leads to resentment. It doesn’t have to be this way; fear of cultural misalignment shouldn’t prevent you from doing the right thing for your clients and your practice.

We’re in favor of getting straight the things that you absolutely cannot compromise on, and stating them in writing upfront. We don’t assume that the details will work themselves out. So, leave no white space in the operating agreement. Having an air tight plan is the only way to avoid tensions post merger.

Better Together Than Apart

A recent acquisition of ours had all the cultural factors working in our favor. We took on a wonderful practice run by a gentleman named Troy Buder. Troy had a number of projects outside of his business that he wanted to put his attention to.  His firm had grown to a size where it started to need additional trading, compliance, due diligence, and portfolio management resources, but the business model didn’t account for that. He also sought the strategic guidance of an executive team, but he realized that specialized talent wasn’t easy to come by.

Once Troy’s firm became part of ACG Wealth, his clients were introduced to all that we had to offer. David McInnis, the ACG advisor who acted as a partner to Troy, traveled from Atlanta to North Carolina frequently to nurture relationships with Troy’s clients in person. We found that many clients had a need for financial planning, retirement planning, or advice on qualified retirement plans such as 401ks or 403bs. During this process we identified non-productive assets and were able to help clients optimize them. As a result, the practice grew by almost double within four years.

The Advisor’s Perspective

According to Buder, “Becoming part of ACG was probably the best business decision I ever made. I would do it again if I had the same decision to make.”

When asked what advice Buder would have for advisors who are in the same boat, he would suggest they look for a firm that is a good fit for them from a variety of angles.

Yes, the financial aspect is important, but it isn’t all that matters.

The way the firm manages money, the resources they offer to their clients, their culture, sense of integrity, company values, mission, and philosophy, and their fee structure are all factors that should be taken into account.

Buder said that he made a list of the things that were important to him as a business owner. Having a strong moral compass and being guided by virtuous principles were key, as well as a strong willingness to grow and meet the needs of his clientele. It was also important that the firm was able to provide diversification outside of the traditional stock and bond asset classes – expertise with alternative investments such as hedge funds and private equity was a must.

The people were a big part of the equation. David McInnis’ willingness to travel to North Carolina made things much easier. According to Buder, “the fact that ACG was willing to keep the North Carolina office open and treat it as an extension of their company made it much more seamless for the clients.”

Overall, Buder and his practice have no regrets. His clients have gained everything that ACG has to offer (investment committee, broader stable of investment managers, etc.) without bearing an increase in fees or having to give up anything they value.

Not Everyone is a Skilled Buyer

If you were selling a house, would you want to sell it to: someone who was experienced with mortgages, a pre-approved financer, or would any old buyer do?

Not everyone has bought an advisor firm before. Over the last 15 years, ACG Wealth has purchased, tucked in, or succession planned 16 firms. Our approach differs from the larger consolidators in the space in that we are opportunistic and don’t just do transactions to get them done. There is a purpose and strategy behind each combination.

Email acg@acgwealth.com to learn more about working with us as your successor.

Sources

Echelon Partners. (n.d.) The 2017 Echelon RIA M&A Deal Report™. Retrieved on April 23, 2018 from https://www.riadealbook.com/ria-m-a-dealbook-report

Jared Gold