Operational efficiencies drive M&A growth strategies

As the independent advisory industry experiences changes driven by a number of seismic shifts, leading firms are investing in their back office operations to create an agile infrastructure to capitalize on the many opportunities being created.

Chief among the macro-trends facing advisers today is the aging of the founding principals of the industry. A majority of advisory firm owners are nearing retirement, which means that thousands of businesses will need to be transitioned internally to the next generation or put on the market for sale over the next five to 10 years.

In preparation for this, many advisers are looking to merge, acquire a firm or be acquired so that they have a transition plan in place to best monetize their career’s work.

Other forces transforming the industry include the increasing costs of managing an advisory firm, driven by a more complex operating environment, changing regulatory requirements and increased competition for adviser talent. These increased costs may make some firms unprofitable, creating additional demand for mergers to harness necessary economies of scale.

But as the management gurus say, “With change comes opportunity.” Some of the fastest growers in the advisory industry have made it a priority to invest in creating efficient, scalable and nimble operations so that they can acquire attractive practices or lure advisers breaking away from legacy firms.

“We didn’t set out to be great at technology in order to be able to acquire firms,” said Roger Hewins, president and founder of Hewins Financial Advisors. “But it certainly has given us the ability to seamlessly do so today.” Hewins Financial Advisors is a fast-growing RIA, with 16 advisers on staff, several associate advisers in development, locations across the country and several billion dollars under management.

“As a firm, we’ve always thought in terms of growth and that is a core tenet of our culture,” Mr. Hewins said. “We provide a highly integrated financial service model to our clients and, as a result, need to be excellent at technology to do that business well.”

Hewins Financial Advisors has a number of integrated systems that allow it to provide efficient service delivery, as well as support multiple locations.

“Our advisers can tap into our central system no matter where they are located. Our focus on document management is key, so that there is no need for paper files in any location. This simplifies compliance greatly,” Mr. Hewins said.

Another important step that Mr. Hewins has taken to make recruiting a smooth process is to centralize trading in their main headquarters through their Tamarac system. By removing and centralizing this core task, it frees up their advisers to focus on managing clients and building their businesses, while also making it much easier to bring in new practices.

Another advisory firm that is leveraging its operational excellence to acquire firms and add new advisers is Rehmann Financial. “Being acquired and joining a larger enterprise is very similar to moving into a new house for many advisers,” said Amy Flourry, senior operations manager for Rehmann Financial. “It’s fun to buy the house, but there can also be a lot of anxiety about the actual moving part. We help remove that anxiety by showing the prospective adviser that our systems and technology will enhance what they are doing today.”

Rehmann Financial has acquired dozens of advisory practices in the last few years and now has 41 advisers on staff at locations across the country.

A key aspect of the nimble infrastructure Rehmann has built has been to integrate its document management system, Laserfiche, with its CRM platform, Junxure. “Our work flows for opening new accounts, compliance approval and other processes are integrated and automated between our CRM, document management and other systems, so that no matter where our advisers are based, we have a consistent approach and can efficiently manage large volumes,” Ms. Flourry said.

While the focus on technology, automated work flows and integrated systems are extremely important in facilitating a merger or acquisition, both Ms. Flourry and Mr. Hewins caution that if the adviser isn’t a good fit culturally, then the assets he or she would bring in aren’t worth it.

“We are not growing just for growth’s sake,” noted Mr. Flourry. “There has to be a good fit for our vision and values first, before we’ll even start talking about joining.”

Mr. Hewins agrees. “As part of our company philosophy, we require that the new firm or adviser has to buy into our way of doing things and has a similar mindset. Our experience has been that all of our problems in the past can be traced to people who didn’t have the same cultural fit.”

So as you look to drive growth in your firm, a key place to start is investing in the infrastructure needed to run your business on a daily basis. Industry experts and consultants advise that firms take advantage of efficiencies, cost savings and scale available with the latest purpose-built systems. By doing so, you will not only improve your cash flow today, but also your long-term business value tomorrow by creating the capacity to capitalize on the coming mass transition of advisory firms on the horizon.

Timothy D. Welsh, CFP® is president and founder of Nexus Strategy LLC, a leading consulting firm to the wealth management industry, and can be reached at [email protected] or followed on Twitter @NexusStrategy.