For at least the sixth consecutive year, M&A activity hit record highs in the RIA space in 2019.
As the engine behind a few of those transactions, there's something that’s impressed me since we began acquiring firms a few years ago: Principals are deeply concerned about the impact a sale will have on their clients and staff.
With most principals at advisory firms averaging over 50 years of age, our industry is one of the oldest in any sector. Unfortunately, advisers can’t work forever, even if they want to. In fact, retirement may be forced upon any of us at any time.
For advisers with the noble intention of looking out for the interests of their clients and staff, that means a specially crafted succession plan. Since banks are not keen on lending to buyers of cash-flow-dependent businesses, some advisers may need to think about self-financing the sale. For others, it means negotiating a sale with a larger firm.
The best part of this is that record-high valuations mean choices. If taking care of the people who have taken care of your business is important to you, you should be able to find a buyer that supports that vision.
Of course, any succession plan that includes a sale requires massive amounts of due diligence. Will the acquiring firm really look out for your clients’ best interests? Will your staff be brushed aside, or will they be embraced and given the opportunity to grow professionally?
In this white-hot market, while it's certainly not secondary, price is no longer the stand-alone consideration. If your firm has value, you’ll have suitors making offers.
I tell principals all the time that selling and looking out for the needs of your clients means entering into an agreement with a forward-thinking firm that has a wider range of service offerings, a fiduciary mindset that doesn’t chase the market, and the most modern technologies.
Another key factor is that clients get to keep their current adviser.
Difficult as it can be to accept, an agreement with the right firm will result in the client feeling that service and communication has improved. (And shouldn’t that be your goal?) The key is to clearly explain this to clients in advance so they understand that while the name may change, they’re going to benefit from the process.
Making sure the needs of staff are met is not that dissimilar from doing what’s best for your clients. Conduct your due diligence, know what you want for your staff, ask for it, and a good price should follow.
That means negotiating with a national firm that is serious about organic growth and expansion via marketing, education and client service. A firm like that not only provides you yourself with numerous possible roles and career options, it will likely give your staff more opportunity for professional growth down the line.
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Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.
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