Successful RIA Deals Take More Than a Checkbook

Gabe Garcia (left) leads a discussion on RIA M&As with Dave Barton, Rich Gill and Greg Friedman at MarketCounsel Summit 2018. (Photo: Jab Buhay, Life In Vegas Photography)

“M&A in wealth management is red hot — there is a frothiness out there,” said Dave Barton, vice chairman of Mercer Advisors, about today’s RIA buying and selling.

“A lot of this is being driven by industrywide consolidation, the large number of early pioneers thinking about retirement, an aging bull market and a highly competitive buyers’ environment, which is bringing people to the table in droves,” Barton explained during last week’s MarketCounsel Summit in Las Vegas.

Mercer has been on a tear — acquiring 16 firms over the past three years and adding $6 billion to its total assets. Other firms also have been busy; Wealth Partners Capital Group, for instance, has done deals for the three RIAs in which it has minority stakes.

The hot market for RIA deals is driving valuations skyward. “Prices are higher now than last year, even from just six months ago,” Barton said.

But just having the funds to make deals happen isn’t enough for success in the M&A space today, according to Rich Gill, a senior partner with Wealth Partners Capital Group.

“Ten years ago, all you needed to have was a checkbook. Now that doesn’t work,” he said, during a panel discussion led by Pershing Advisor Solutions Managing Director Gabe Garcia.  

“There are so many options, and the hyper-competitive nature of the buyer community is making everyone work harder,” Gill explained.

3 ‘Must Do’ Items

Buyers must “articulate the added value they bring to the table in terms of strategic positioning, as well as [provide] assurances that the sellers’ staffs and clients will be well taken care of,” he said.

Barton agrees: “Sellers are scientists, they are financial planners and have a much broader view of what they are trying to accomplish. Price, of course, is a consideration  — you have to be in the ballpark.

“But you also need to make sure staff is taken care of [and] clients are taken care of. These are the three boxes that need to be checked: price, clients, staff,” he said.

Barton sees his M&A success stemming from what Mercer brings to the table. “We communicate clearly that we believe there is a talent shortage in the industry, there is room for everyone — particularly in a firm of Mercer’s size, so the seller knows … that their staff will have a home,” he said.  

Also, since Mercer has “a family office setup with in-house estate attorneys, tax professionals and corporate trustee services, sellers’ clients will also enjoy an enhanced service experience,” Barton explained.

Both buyers and sellers need to dig into the cultural issues to see if there will be a fit from an M&A they are contemplating, according to Greg Friedman, CEO of the wealth management firm Private Ocean.

“Right now, most people focus 80% of their attention on negotiating the terms of the deal, and only 20% on how the firms will integrate. This should absolutely be flipped, so you spend 80% of your time getting to know your new partners,” he explained.

“Even the simplest of details can turn into big issues later on, depending on how you define things up front, such as client service, investing philosophy, organizational structures and more,” Friedman added.