There’s a lot of talk in the industry about advisor succession, but not as much action.
So what’s impeding advisor M&A?
Supply-side constraints: Advisors are reluctant sellers, says Roger Verboon, Securities America’s director of practice continuity, succession and acquisition planning.
“Everybody wants to acquire a business, but there’s absolutely resistance to selling their business,” Verboon told ThinkAdvisor in a phone interview.
“It’s an easy job. It’s not intensive like digging ditches. There’s a nice recurring revenue stream and a lot of these guys have created great relationships with their clients. For advisors to think about retiring — it’s a very emotional thing. We help them get over the emotional hurdle,” he says.
And critically, Securities America helps buyers get over the financial hurdle of acquiring another practice.
The Nebraska-based broker-dealer, a wholly owned subsidiary of Ladenburg Thalmann Financial Services, announced Tuesday a partnership with an Omaha-based bank that should expand its capacity to finance acquisitions of advisor practices to about double the number of deals the firm shepherded to completion last year.
Formalizing that financial capacity comes at a time of advisor M&A momentum. In 2012, Securities America helped 10 advisors buy the businesses of retiring advisors, a figure that rose to 14 last year. It’s only the first half of February, and Verboon already has five deals in the works.
Verboon says practice acquisitions are just one path for advisors to expand their business—marketing and referrals are others—but the oft-discussed aging of advisors puts wind behind the sails of that trend.
While stories of acquisitions gone awry are not unheard of in the industry, Verboon recalls just one botched practice acquisition out of 76 the firm has assisted with in the past five years.
But the story is instructive:
“The successor advisor just didn’t get out there and connect with clients quickly enough, so the clients called the retired advisor back in Florida and said ‘Hey, come back to me.’”
Needless to say, the developments were highly disconcerting to the retired advisor, who didn’t want to see his clients poorly looked after.
Financially, he was protected, Verboon says.
“The deal was part earn-out. It was structured in such a way so that there was a pretty large down payment and fixed promissory note, so there was no fluctuation.
“But he wasn’t expecting to have to do the extra work to help continue to guide his clients.”