Most financial advisors pour a lot of their heart and soul into building up an independent firm. That’s a large part of why, when selling seems wise, that the process can become challenging. Nevertheless, the success of a sale can depend on numerous external factors, especially including technology.
Just because your goals and culture align well doesn’t mean that you can afford to overlook a prospective buyer’s tech resources. In fact, an ideal alliance should show promise by this metric, as well: Technology-driven buyers are essential for the modern independent firm. They can bring experience in navigating clients’ (and prospects’) needs while also embracing new opportunities.
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It’s essential to find a buyer that will partner with you, treating your practice with respect and care similar to your own. However, too many firms overlook how important technology can also be in finding a suitable partner during this process. From improved operational efficiency to better client service capabilities, up-to-date tech can offer a range of building blocks with the potential to enhance your acquisition journey (when implemented correctly).
So, as you evaluate potential buyers for your RIA, consider researching their existing infrastructure early on:
Answering these questions can help you determine if a potential buyer has what it takes to help handle your everyday operations. Additionally, ask potential buyers what other technologies they plan on using in the future. This may give you better insight into their long-term strategy beyond the acquisition.
Another important factor to consider is whether or not they are willing to invest in new technologies as needed. That’s why you may want to verify that there’s room within their budget for upgrades or additional software purchases. This can be especially important if your current platform-to-be wouldn’t meet certain industry standards or regulations
Evaluating buyer candidates in areas such as their existing infrastructure, planned future investments, and budget flexibility are key steps toward ensuring that you’ll both be well-equipped for success upon completion of the sale process.
Before you start the process of selling your RIA, it’s important to inventory all of the technology platforms that your firm is using. This may vary from websites and databases to customer relationship management (CRM) software and financial planning tools. Once you have a list compiled, evaluate each platform to determine if they are meeting all of your current needs.
Next, consider whether or not they will continue to be advantageous after the sale is complete. If anything won’t, you may need additional technology solutions or upgrades to ensure a successful transition for both parties. Conducting a gap analysis can help you identify technological areas in need of improvement or attention.
The process compares the present state of your firm with its desired end state or target. As a result, closing the “gap” revealed between these two states can become your focus. When evaluating potential buyers, this can help you compare and contrast features offered with those that your RIA currently has (or lacks).
There are several things that should be taken into consideration when conducting a gap analysis of technology functionality between your current setup and potential buyers’ platforms. For example, you should analyze their/your software compatibility, hardware requirements, cost-effectiveness, scalability, security protocols, customer service capabilities, and so on.
In addition to these factors, consider the likely duration of resulting changes taking effect. If there are any associated costs with transitioning from one data management system to another, they’ll have to be included, as well. Lastly, consider how well-equipped potential buyers’ software platforms are at handling regulations such as the General Data Protection Regulation (GDPR).
Another key factor is what type of training and support prospective buyers could provide to you, your team, and your clients. Buyers who have an established relationship with a larger organization may also be able to provide additional collateral benefits. These may include back-office wealth management support, access to multiple distribution channels, and more. Meanwhile, a lack of these things could hinder an advisory firm’s financial services.
It’s especially important to be aware of all possible costs associated with transitioning to a new tech platform. The main expense will probably be the software license itself. These typically range from hundreds to thousands of dollars depending on the features, capabilities offered, and how many people will use the program(s).
Some software licenses also require additional setup fees or training fees in order to get up and running quickly. So, ask upfront about any monthly or yearly subscription fees. Similarly, note any maintenance or support costs that might be incurred after the purchase. Data migration costs can also be an additional expense.
“Migration” refers to the transfer of your (and often, your clients’) digital information from one system into another. Its price can vary, based on the type and volume of data being transferred. However, it can be a necessary expense when switching platforms. If you want to make sure all existing customer information is moved over accurately, safely, and with the least drain on your team’s work hours, it’s often worth the cost.
Depending on the new tech or cloud platform you choose, you may also need to purchase additional servers or storage devices to house/stream your data securely and efficiently. Your hardware needs could change over time as technology advances, so budget for future upgrades, as well.
Lastly, it’s critical to consider the potential impact of a buyer’s new technology on your staff as well as clients. On the upside, their technology could help streamline processes and reduce costs. This could mean boosts like the faster transfer of funds to improved communication with clients.
Possible downsides include staff and clients’ resistance to taking on new technologies (making additional support, such as training and troubleshooting necessary). Similarly, greater reliance on a particular software can sometimes lead to tougher decisions with less data available from your sources. This may leave staff and clients with fewer options for their portfolios.
In other words, look before you leap. Taking the time to understand the likely outcome of new technological changes can help you identify more efficient ways of doing business. That can lead to providing a higher-value client experience. It could also reveal potential cost savings.
ViaWealth, LLC is a Registered Investment Adviser. Information in this article is for educational purposes only and is not intended to be an offer or solicitation for the sale or purchase of any specific securities or other types of investments. Investing in the securities markets involve risk of principal and unless otherwise stated, returns are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before making any financial decisions. Past performance is not indicative of future performance.