Considering growing through M&A? Don't call it a 'tuck-in'

Given the massive increase of merger and acquisition activity in wealth management, and understanding the complexity and unique nature of each of these transactions, we have to ask ourselves one very important question: How did our industry ever decide upon using the words “tuck-in” when referring to acquiring someone's business? I mean, seriously. Have you ever actually looked up the term in the dictionary (let alone Urban Dictionary)? My unabridged dictionary has more than 20 different definitions for the term “tuck-in” and its variants. None offers any reference whatsoever to the financial services industry. In gymnastics or diving or skiing you can assume a tuck-in position (noun). When it is a transitive verb you can tuck in blankets, children, papers, tennis tails, feathers, hair and even a fine meal (when in England). A seamstress can tuck in a garment. There were even a couple of new ones to me. In tying knots, it is the operation of passing one strand above or below another. And perhaps my favorite – in soccer, it is to score with a casual motion. We in the United States see that happen to our soccer teams all too often. But for an acquisition? DOESN'T CAPTURE MAGNITUDE Let's for a moment get an idea of what is happening in the RIA and wealth management space with regard to mergers and acquisitions. I don't think the sophomoric term “tuck-in” actually captures the magnitude of importance that these transactions represent. There is movement. A lot of movement. And let's just say that it mirrors the money in motion that we see with baby boomer clients of financial advisers. Except now it's the advisers' wealth management businesses that are looking for new homes. According to Cerulli Associates Advisor Metrics, nearly a third of the roughly 15,000+ registered investment advisers and 54,000 wirehouse advisers will retire or exit the industry in the next ten years. That's a big number. Almost 35% of RIAs and advisers are older than 55, and their average age is nearly 51. So, let's put this in perspective. Just considering the RIA firms, that means that $900 billion will look for a new home in the next decade. And we do know this: Securities and Exchange Commission chairwoman Mary Jo White supports the concept of a rule that is “completely consistent with the types of planning that advisers recommend their clients do: accepting and planning for your mortality.” Independent firms and wealth managers are looking toward possible merger or acquisition as a means to satisfy a variety of ends — succession planning, of course, but also advanced technology, institutional resources and platforms, geographic expansion opportunities, complementary expertise and the increasing demand for economies of scale. SOPHISTICATED PROCESS And the process of working with wealth management firms to provide them with a customized and expertly-crafted solution is highly sophisticated. The enhanced due diligence required to analyze the business of a successful veteran of the wealth management industry is thorough and detailed. Valuations and projections are dependent on complex, proprietary algorithms that lead to appropriate business acquisition structures and agreements. We look to maintain a delicate balance of firm culture and fiduciary responsibilities with the business need to grow and remain profitable. It is science. And it is art. And it is respectful of the hard work financial advisers do each day on behalf of their valued relationships and in developing significant businesses. So, the next time you consider an inorganic growth strategy through merger or acquisition just remember — don't call them a tuck-in. Paul Landaiche is director of RIA growth at Dynasty Financial Partners.