26 Apr2018
Industry Perspectives by Frank LaRosa; M&A for the RIA: How a Little Planning Now Can Reap Big Rewards in the Future

Last week, DeVoe and Company released some interesting statistics related to RIA mergers & acquisitions. While the slight uptick in the first quarter of this year of 47 M&As over 46 M&As last year offers an indicator of strength, the most illuminating statistic comes when comparing who the mergers are occurring with. Almost half of the M&As Q1 this year were RIAs selling to other RIAs, meaning that advisors are choosing to sell their books of business to other advisors or small firms versus larger firms. Understanding the financial services M&A landscape and the nuances of long-term planning necessary to position your book of business for sale is key if you are interested in capitalizing on the upside financial potential such an opportunity presents.

First and foremost, successful RIAs build their book by establishing solid client relationships that span decades and that result in referral relationships. A successful sale of such a book of business requires that the company acquiring the accounts be able to service those clients with the same business philosophy, attention to detail, and customer care as the original RIA which held the account.

A second factor impacting the sale of an RIA’s book of business is technology as many RIAs utilize specific CRMs and advisor platforms to manage their client accounts. Merging with a firm offering a compatible technology and the IT staff to support the data transfer is key to migrating the legacy of important client data and files.

A third consideration are the products, services, and various portfolio models currently offered by the RIA and those of the firm they are merging with or being acquired by. The products should be nearly, if not, identical and afford the same benefits and outcomes to the client in both short and long-term forecasting.  When merging models, it’s important to make sure the models are either better than the acquiring models or a good compliment to the existing models.

Another consideration in choosing a potential acquisition partner would be the clearing and custody each party uses.  By combining forces you may be able to drive down your custody and clearing charges, and in turn, reduce the cost of service to your clients and/or increase overall profitability.

These are just a few of the myriad of issues which need to be addressed when an RIA chooses to sell their book of business, though, it is important to note that a fast, simple, and easy solution exists to bypass these issues and eliminate any potential M&A missteps. As Consultants, we work with advisors every day who are interested in joining an existing firm with the longterm intent to sell their book of business. This methodology for an M&A is particularly successful as the advisor themselves would be the one integrating their customer base into the acquiring firm. Additionally, the new firm’s technology platform, product and service offering, and guiding business philosophy would all be transitioned or established under the guidance of the advisor. Most importantly, when an advisor joins a firm in these situations, the financial end game and terms for acquiring the book of business are in place from the outset. With such a strong upside for conducting an M&A under this paradigm, it’s no wonder so many RIAs seek the guidance of a consultant to place them in the strongest position possible for selling their practice.

For more information on how Elite Consulting Partners can assist you in preparing your book of business for M&A, our complete suite of services, most recent moves, or other strategic advice that can help you, visit www.ercadvisors.com.