Buy your way toward higher assets under management

Acquiring clients can be a winning growth strategy, particularly for young advisers

Jan 21, 2014 @ 12:09 pm

By Liz Skinner

assets under management
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Young advisers struggling to gain a critical mass of clients and bulk up their assets under management may want to find another firm to buy.

Karsten Advisors, a Fort Worth, Texas-based firm with four financial advisers, all under the age of 40, has acquired nine advisory practices in the last 13 years to reach a total of $250 million in client AUM.

In the most recent purchase earlier this month, the firm acquired Denver-based Kurtenbach & Co., bringing over 126 clients and about $15 million in assets. Under the deal, Terri Kurtenbach will transition into retirement while her office manager will remain in the Denver office and now work for Karsten.

“All of our advisers are younger and acquiring firms has been key for our plan for growth,” said Tom Karsten, president of Karsten Advisors.

It's challenging for younger people in the industry to attract assets and market themselves, he said. Karsten Advisors has had success finding practices whose owner is retiring and interested in matching his or her clients with a younger adviser.

(See also: Finding succession solutions under your nose)

Acquisition is a popular method of growth in the advisory business. In fact, a quarter of advisory firms with $100 million to $1 billion in AUM are actively seeking to acquire another firm, according to a 2013 RIA benchmarking study by The Charles Schwab Corp.

Although many of the deals Karsten Advisors has undertaken involve firms with low asset levels, being purchased has helped their client base, which consequently boosts the number of client referrals coming in and leads to organic growth, as well, Mr. Karsten said.

Of course, not all the acquisitions went smoothly, and the firm has realized it need to have sufficient staffing and technological capabilities to handle the additional clients.

“With those acquisitions that went poorly, we didn't have everything in place we needed to handle the large amount of work that comes when taking over and acquiring a practice,” Mr. Karsten said.

Consultants say acquisitions are an effective way to grow, but they are much more challenging to complete than most advisers think. And infrastructure and capacity concerns are only part of the difficulties.

“Some advisers think practice acquisition is the silver bullet for growth,” said Kevin Cullen, director of practice management for Loring Ward, a portfolio management firm. “The criteria of whether it's a success is a culture fit.”

Merging two practices will be easier if they have similar broker-dealers, investment philosophies and work-flow processes, Mr. Cullen said.

In the absence of those, internal growth, particularly through client referrals, might be a better way to go.

“With organic growth, there's no drama of dealing with new clients who have different expectations or of having to deal with contractual provisions of the sale,” Mr. Cullen said.

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