Business hands holding puzzle pieces

Mergers and acquisitions in the financial advice space, particularly succession planning deals, include costs that buyers have come to accept as the nature of the beast. There is, of course, the purchase price, along with the interest rate.

Often, though, buyers also pay additional costs, including those related to consultants to guide them through the process, fees for attorneys who review contracts, as well as digital matchmaking tools to line up deals. Yet each of these services, which are typically marketed as essential and value-additive for advisors, can come with hidden M&A costs for the unprepared.

So-Called Experts

Advisor-focused M&A consultants who are true experts in the field, with years of experience shepherding successful deals for happy buyers and sellers, are worth their weight in gold. They are also as rare as a goldmine.

Many independent broker-dealers and boutique consultancies offer advisors business coaching programs that steer advisors toward professionals who lack direct experience in forging successful advisor M&A deals. Advisors also may experience sticker shock when they find themselves paying a host of unanticipated extras beyond the initial generalist consulting package to advance through the process.

For instance, M&A consultants typically charge a minimum retainer and often also charge a percentage of the deal valuation. If they identify the deal financing, some consultants add a charge on top of loan origination fees. Furthermore, consultants often provide these M&A services by tapping outside vendors that they bring in for the advisor.

To be clear, vendors and extra charges are not unusual for true M&A consulting experts. In that case, the advisor pays fees on valuation expertise, deal flow identification, financing origination and underwriting fees to a real expert who earns their money with better access and genuine M&A experience.

Therefore, make sure you know who the third-party vendors are, the costs associated with them, whether the consultant is adding markups, and if so, how much. Based on that discovery, if you’re going to pay third-party vendors and markups to a ringmaster, consider going to a real expert who does this every day instead of a generalist who dips their beak into M&A consulting.

Generic Attorneys

This category of hidden costs is really the advisor’s fault. It revolves around gaps and oversights that occur when hapless buyers use generic attorneys to handle legally binding agreements with sellers. This tends to stem from the buyer’s mistaken belief that he or she knows enough about the wealth management M&A process to forgo industry-specific guidance. A wide range of problems can ensue without drafting detailed and well-planned agreements before the deal closes.

The seller could sue the buyer for cherry-picking clients instead of onboarding the agreed upon book of business. The buyer could unexpectedly be forced to pay for annual subscriptions to unwanted software that the seller uses. Or the buyer and seller could disagree about the full payment based on how many clients stay on after the transition and the actual GDC of the practice even if the forecast number of clients remain. The average generic attorney might not anticipate these and other advisor-specific complications.

Matchmaking Technology

We live in an age where our smartphones and favorite apps gets upgraded before we even acclimate to the previous models, so it’s easy to assume that advisor-focused digital matchmaking tools will be just as cutting edge. Unfortunately, I can tell you from firsthand experience that some of those tools leave much to be desired.

I once used a well-known online M&A matchmaking tool that suggested I would be able to find multiple high-quality sellers soon after I signed up, paid for access to the platform and logged in my details. Instead, I soon got multiple potential buyers asking me about selling my practice — the exact opposite reason I wanted to use the tool. After about a year, I stopped using the tool without any success.

My lesson from that waste of time is that you should always demand a free demo and real-life test period of any M&A matchmaking tool before paying for the service. If the vendor balks, save yourself the time and money. As with consultants, legitimate digital M&A platforms with the ability to simplify and accelerate the process do in fact exist.

Planned Breakup

A wealth management M&A transaction is like a marriage, where you plan the divorce while planning the wedding. If you mismanage that relationship, the result can be very costly. A qualified succession planning-based M&A consultant with expertise in the financial advice space can make sure both parties discuss all the relevant factors in the beginning, to avoid finger pointing once it’s too late. A good consultant can also recommend the proper digital matchmaking tools.

Much like the search for a good selling advisor, when it comes to M&A consultants, online matchmakers and attorneys, the key for potential buyers is to do their research beforehand on who is worth their time, and who is not.


Alex Chalekian is the founder and CEO of Lake Avenue Financial (www.lakeavefinancial.com), an advisory practice based in Pasadena, California.