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An Advisor Merged Her RIA. She Wasn’t Happy.

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Sandra Nesbit expected lemonade. What life served up instead, when she merged her RIA with a national wealth management firm, was lemons.

“Succession is one of the most important decisions an advisor will make. Unfortunately, many don’t know what they don’t know” about it, Nesbit insists in an interview with ThinkAdvisor. She was one of the many.

Now principal of Mainsail Capital Group, a consultancy, she’s guiding investment advisors and registered reps to avoid the pitfalls of merging, selling or acquiring a practice. There’s far more to such transitions than just the numbers, as the former FA knows from, well, bitter experience.

In the interview, Nesbit, who was with Merrill Lynch and RBC before launching her own RIA, discusses the best reasons for merging or acquiring a practice. She also highlights six frequent mistakes FAs make in effecting those transitions.

The former 27-year FA isn’t advising on the deals themselves. As an impartial counselor, she’s consulting on critical aspects that attorneys and accountants typically fail to bring up in negotiations. Feelings, for instance.

Indeed, from day one of her merger, the entrepreneur for seven years was caught off balance when she suddenly had a new role: company employee.

“It was an emotional reaction that nobody prepared [me] for,” she says.

In February 2018, the Certified Divorce Financial Analyst merged practices with Mercer Advisors, clearly not a match made in heaven; for in June 2019, she left to open her consultancy.

Nesbit became an advisor in 1998 at Merrill Lynch, having joined the firm six years earlier as a financial planning specialist training FAs. After a six-year stint at RBC, in 2012 she co-founded the RIA GFS Private Wealth, specializing in serving affluent individuals and families.

At the time of the Mercer merger, GFS’ AUM was about $364 million; and it had nearly $500 million in assets under advisement.

ThinkAdvisor recently interviewed Nesbit — a certified estate and trust specialist and a director at National Advisors Trust Co. — speaking by phone from her Gulf Coast office in Clearwater, Florida. To be sure, FAs of retirement age are M&A candidates, she concurred, but added: “I would hope they wouldn’t wait till they’re 65 to decide and want to retire the next year.”

Here are excerpts from our conversation:

THINKADVISOR: What are the best reasons for an advisor to merge or acquire another practice?

SANDRA NESBIT: One is that they have to retire due to unforeseen reasons. Or they need more depth of professionals on their team. They want to create a wider career path for those professionals. Or they just want a larger presence for their clients.

What mistakes do advisors make that are likely to result in a bad merger or acquisition?

Not doing all the legwork early on or waiting too long [to start the process], which could turn all the potential positive outcomes to negatives. Also, creating a bad culture by not making sure there’s cultural alignment for both employees and clients. The loss of professionals leads to loss of clients.

Any other pitfalls?

Not knowing and understanding all the options. Not being prepared emotionally. And not having a disinterested third-party advocate.

Do advisors often make these transactions for psychological reasons, such as burnout?

In those cases, they’ve waited too long to decide — and frustration has set in.

Are there other reasons that prompt FAs to merge or integrate?

You can solve for almost anything, but you have to take the time to make sure you know what your business model is and what your needs are — and then get introduced to the right people.

Is there a certain revenue or asset level that an advisor should reach before they consider this major change?

The numbers are actually all over the place. Just because an RIA firm, for example, is very small doesn’t mean they don’t want succession — whether they try to do an internal succession plan or look elsewhere [to plan] for that time when they’re no longer there. People are always looking for small firms; so it’s not just about giant acquisitions and mergers.

How does the fact that many advisors are retiring play into this scenario?

That might motivate them to sell, but I would hope they wouldn’t wait till they’re 65 to decide and want to retire the next year.

You merged your own RIA with Mercer Advisors in February 2018 and left in June 2019 to start a consulting company. Why did you decide to merge your practice?

We had clients all over the country and wanted to be a national firm. Also, we wanted to create a greater career path for our teammates.

What did you learn from the experience that you’re putting to use now helping other FAs?

I learned: “You don’t know what you don’t know.” I didn’t know I was going to have my emotions stirred up by becoming an employee after being an entrepreneur and running my own firm for seven years. If you stay [after the transaction] to advise clients, there’s a lot of emotion tied to that versus just walking away.

Please elaborate on how you felt emotionally.

You’re an entrepreneur: You’ve run your business. It’s your baby, basically. You’ve done everything to make sure it’s become successful. A lot of people [employees] depend on you. The clients depend on you. You’re marketing your practice and yourself in the community. But then, the day after the transaction, you wake up and you’re an employee.

That’s a big change. What hit you first?

That your business isn’t your baby anymore. You’ve lost your autonomy. You don’t have the final say. So there’s that emotional reaction you have that nobody prepared you for.

If you could transact your merger all over again, what would you do differently?

I would find myself an advocate, a consultant to hammer out more of the other things involved, as opposed to just doing the numbers with my attorney and accountant. I would try to drill down more and to be more prepared.

Should an advisor tell clients in advance they’re going to merge or acquire another firm?

That depends on the business model. It’s not as important if you’re an asset manager versus being clients’ trusted advisor and working with multi-generations of a family’s wealth. If [the change] simply happens and there’s been no conversation about it, it will be upsetting for many clients.

In your own situation, how did you handle telling the clients?

We were very upfront with both our clients and employees. We didn’t want them to be surprised or concerned. So early on, we told them what we intended to do. We wanted to tell them what our intentions were and why we were making this decision. We didn’t want to lose any of our professionals going through the merger. That would have been alarming and upsetting to the end client as well.

Do you think it’s still a seller’s market?

I feel that it’s going to remain a seller’s market as long as there’s a buyer who’s willing to pay.

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