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M&A Advice for Advisors on Buying Another Firm

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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




the new owner, there’s no value. This is true whether the seller is phasing out into retirement (successful deals also include at least a one-year transition from the old advisor to the new one), or the selling advisor is going to join with the new firm.

So, where do you find practices like yours for sale? Many advisors start with local firms they’ve known for years, which certainly makes the due diligence process easier. In these deals, the key question is: Are these two firms really a good fit, or just convenient? Others turn to their broker/dealer or custodian to find selling firms. Again, keep in mind that the B/D’s or custodian’s primary concern is keeping those client assets in their system: whether it’s a good deal for both buyer and seller can sometimes become secondary.

For a more objective listing of advisory practices for sale, I’ve always been impressed with FP Transitions out of Portland, which also matches buyers and sellers and then facilitates the transaction to completion. Disclosure: FP Transitions CEO David Grau Sr. is a former client of mine, but he and his team have facilitated hundreds of advisor transactions, amassing an extensive knowledge base about what works and what doesn’t.

One of his pearls of wisdom is that transitioning an advisory practice from one owner to another is very difficult: without a third party to smooth out the bumps, very few deals are completed on their own.


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