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Practice Management > Succession Planning

RIA M&As at 'Unprecedented Level': Wealth/Stack Panelist

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As the temperatures moved toward 100 degrees in Phoenix, panelists at Sunday’s inaugural Wealth/Stack conference said deal-making in the advisory space is hot and getting hotter.

“There is an unprecedented level of activity,” said FP Transitions President David Grau, and not just for large deals. Firms with assets of $4 billion or less are also active in the marketplace.

“More people are contemplating selling what they built,” Grau said to a crowd of about 700 advisors and other guests. This month, FP Transitions has worked on about $40 million worth of sales and expects to see 20 transitions, he added.

“The buyers are lined up deep and have bank financing. Five years ago, there was no such thing,” Grau explained. “Now, everyone’s talking to banks.”

Ken Auspaker, a managing director of Evercore, says the wirehouse firms and large consolidating RIA platforms are providing financing, too. “There are lots of opportunities for RIAs.”

Let’s Make a Deal

Rather than focusing on what price they are paying, potential buyers should focus on other terms, Grau says: “Take valuation off the table. The seller’s going to win that. How about the transition plan to get 95% of clients over [to the buyer] and getting the payment and finance terms [you want]? Don’t worry over the price. It’s the [other] terms and taxes.”

As for succession planning, advisors need to get real, the panelists said.

“It’s great that there’s a bull market” for advisory-firm M&As, said Lake Avenue Financial CEO Alex Chalekian. “But you don’t want to wait until you have to make a move.”

Grau explained: “Many advisors are thinking, ‘Someday when I leave, I will find out what the 85:1 [ratio of buyers to sellers] can bring me.’ But … only one in 10 will sell, not the rest.”

In order to sell, you have to build a practice that is sustainable, meaning it has a succession plan “that outlives you,” he said, “and that lives the length of your clients’ lifecycle.”

And, Grau adds, advisors can’t just recruit, train and retain advisors overnight. “It takes 10-15 years for a good succession plan, so … start now,” he said.

Beyond Succession Planning

RIA Oasis President Kristen Schmidt suggests advisors think beyond succession planning. “Lots of firms are going into M&As to acquire a service they cannot now offer,” she said.

“Mergers can bring in a [new] business model,” Schmidt explained. “We are seeing CPA businesses going into the advisor space. CPAs do not want to do FA stuff, … but they have pipelines of clients.”

For Kirsten Petras, head of sales for Oak Street Funding, “It’s going both ways: CPAs are adding advisory firms, and advisors are getting CPAs.”

For Grau, this is the way to go. “Mergers are the most powerful reshaping tool,” he said. “They’re much better than acquisitions.”

A merger might bring together several small firms with owners or leaders of different ages. “Then you have a succession plan,” he explained, via blending the financial planner, wealth manager and technology.

Just watch out, Schmidt cautions. “This can be a nightmare, considering that the [merged] technology may not be ideal.”

Outside of tech, look at what else the merger is bringing together, she adds. “Ask which one of these things doesn’t belong? Mixing and merging [business] cultures, for instance, is another issue.”

— Check out RIA M&A Growth Evolves From ‘Spike’ to ‘Surge’: DeVoe on ThinkAdvisor.


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