Merging RIAs? These 10 Factors Can Align Business Interests

You have made the decision to sell your RIA. In today’s market, there are more buyers than there are sellers. That’s because merger-and-acquisition is definitely a viable strategy for accelerating growth for ambitious RIAs: They know it takes a critical mass of assets and recurring revenue to compete in the big leagues. 

And, very few RIAs have the marketing muscle to get there on their own over the long term. Being acquired may be a once-in-a-lifetime opportunity for you, so it is critical that you make the right decisions before selling your practice.

One way to make that happen is to make sure your business interests are as aligned as possible with the buyers. This facilitates the transition from owning your own firm to being part of a bigger firm. Or, it facilitates the transition from your working years to your retirement years. 

Either way, the transition is easier when the business interests of the buyer and seller agree. So, here are 10 questions you should be asking to help align interests and create a smoother transition:

• Does the location of your firm matter?
• Will you be keeping your brand or taking on the brand of a buyer? 
• How do the buyer’s target markets match up with yours?

• What new services will you be able to provide to clients?
• What custodians will you have available?
• What do you know about the buyers’ fee schedules?
• What investment management services/resources will be available?
• What kind of marketing services will the buyer provide?
• What types of analytics and reports will you have on hand?
• What’s the transition strategy for current prospects and clients?

Does the Location of Your Firm Matter?

Let’s assume the buyer is headquartered in New York City and your firm is located in Palm Beach, Florida: A big percentage of the buyer’s clientele are snowbirds. As a result, the buyer has always wanted a physical presence in Florida for meeting with them during the winter months.

The buyer assumes the two locations will produce serious competitive advantages for clients in New York, Florida, and the snowbirds who go back and forth. In this case, location matters a lot—because the buyer is seeking a seller in Florida.

Make sure that the buyer’s location strategy aligns with yours. 

Will You Be Keeping Your Brand or Taking On the Buyer’s?

Some sellers want to build a national brand for their firm. This becomes increasingly important as more and more RIAs adopt virtual marketing practices. Doing so means that they can acquire clients anywhere in the country (and they are not limited to clients they meet face-to-face).

On the other hand, you may have very strong brand awareness in your local community. Is this a good enough reason for the buyer to operate under multiple brand names? It is tough enough to build one brand versus multiple brands.

Make sure the buyer’s brand strategy aligns with your firm’s. 

How Do the Buyer’s Target Markets Match Up With Yours?

Some advisory firms are generalists; they will work for anyone who can meet their minimum asset requirements. In fact, they describe their clients as HNW or UHNW. Other financial advisors are better described as specialists: They work with retirees, pre-retirees, business owners, women, baby boomers, millennials, or other professionals.

Make sure the buyer’s target markets align with your own. 

What Services Will You Be Able To Provide to Clients?

It is reasonable to assume that a bigger firm will be able to provide a broader array of financial advice and services. In fact, many of the buyers may be structured as multi-family offices providing all five categories of wealth management services: Planning, Portfolio Management, insurance, Tax, and Legal (wills, trusts, probate).

The fee-only RIAs may be limited to planning and investment services. Meanwhile, fee-based hybrids may also sell investment and insurance for commissions among their products offered. 

Make sure the buyer’s financial services, wealth management goals, and compensation align with yours. 

What Custodians Will You Have Available?

A brand-name custodian is definitely a competitive advantage when disclosing the name of the firm that has physical possession of your client’s assets.

However, you may not want to have to move your clients’ assets as part of the merger. You could have the option of leaving the assets where they are—or you could be required to move them to a superior service (that is provided to the buyer for a lower fee).

Make sure the buyer’s custodian strategy aligns with your RIA’s. 

What About the Fee Schedules of the Buyers?

Just about every financial advisor has an asset-based fee schedule with a sliding schedule of fees. Many have minimum asset or fee requirements, as well. These minimums represent the smallest amounts of money they are willing to work for.

Some advisors’ fees are carved in stone; there is no flexibility. Other advisors’ fees have some flexibility (in particular for multiple accounts of different sizes).

Make sure the buyer’s compensation schedules align with yours. 

What Investment Management Services and Resources Will You Have Available?

This is a more complex form of alignment—because there are so many choices. It starts with “Who makes the investment decisions for client assets?” and continues with “Is it internal or outsourced to a third party (OCIO, TAMP, SAM, et cetera)?” 

How are client assets invested (in ETFs, securities, funds, alternative investments, or something else)?

Make sure the buyer’s investment services are in alignment with your firm’s. 

What Kind of Marketing Services Will Be Provided by the Buyer?

It stands to reason that financial advisors with larger AUMs spend more money on marketing than firms with fewer assets under management. This is one of the key differences between smaller and larger RIAs: Bigger firms have better marketing.

What types of marketing services will the buyer be providing for you? This answer may be impacted by the branding that you use. For instance, effective digital marketing is a common powerful element among many successful campaigns. Increasing numbers of investors use the Internet to find, research, and contact financial advisors. As a result, digital marketing can bring them to the websites of financial advisors (and help you convert them into leads).

Make sure that the buyer’s marketing strategies align with your own. 

What types of analytics and reports will you have available?

Your ability to provide state-of-the-art analytics and reporting during volatile markets can be extremely important. Clients tend to be more comfortable and stable when they feel fully informed. This makes monthly statements, quarterly performance reports, and market environment reports important parts of the communication processes. 

Make sure the buyer’s reporting systems align with yours. 

What Is the Transition Strategy for Current Prospects and Clients?

Last, but certainly not least, is the mutually-agreed-upon strategy to be used for transitioning your current prospects and clients to the new firm. This transition can be very smooth—if you are in frequent communication with both constituencies. 

So, make them part of the change. Describe the many benefits associated with the merger. The right strategy, when everyone is behind it, can help you convert more prospects into revenue-producing clients.

Make sure the buyer’s transition strategy aligns with yours. 

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