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December 01, 2010 at 05:07 AM
In an online response to my last blog, “Why Small Firms are Plenty Valuable…,” Doug Miller of Private Wealth Consultants asked the following question: “Bob, our firm does have an interest in acquiring other small advisory firms and have no idea where to start. Would you have any advice as to where a firm like ours would even begin the process?”
I’ve had a number of advisors ask similar questions in recent months, and I suspect there are more than a few independent advisors interested in exploring growing their practices through acquisitions. With the markets now semi-settled down, most advisory firms are back on their financial feet. Yet few of the advisors I’ve talked to feel that they will be able to grow their firms in the foreseeable future at anywhere near the rate they enjoyed over the past 10 or even 20 years. Consequently, growth through acquisitions is an even more attractive prospect these days.
To Doug’s question, the key phrase is “a firm like ours.” The kind of firm you have is probably the most important factor in the success of any acquisition: because the most successful transactions involve firms that are similar. I’m not talking about size here—usually larger firms buy smaller firms. But the areas where similarity is important are:
- Where does your revenue come from (fees, commissions, both)?
- What kind of clients do you target (level of affluence, niche, age)?
- What’s your “philosophy” of advice (comprehensive, investment only, life planning, risk level, retirement, etc.)?
The bottom line is that firms that are similar in as many of these factors as possible have the greatest chance of transitioning the clients from the old firm to the new firm. Make no mistake here: transitioning the clients is the whole ball of wax. There are lots of fancy methods to value a practice, but if the clients don’t transition over to
