Despite the ongoing COVID-19 pandemic, many merger and acquisition opportunities in the RIA sector continue to emerge, according to several consultants and executives.
“Acquisition brands” — advisory firms that have done multiple transactions recently and have made M&A a key part of their growth objectives — are the ones to watch.
These firms “set the pace again in 2019” for M&A activity, said Brandon Kawal, principal of Advisor Growth Strategies, during a recent webcast.
Earlier, a high percentage of M&As — more than 40% — were being “completed by the same 10 firms,” Kawal points out. That trend persisted last year. Recently, though, two-thirds of the transactions have been done by 16 acquisition brands, he explained.
There’s “going to be a lot of opportunity for those that want to enter the market,” driven largely by succession, and the industry’s “going to actually need new participants to handle the need,” he said. Plus, advisor retirements in the next 5-10 years will increase the market for RIA acquisitions.
Only about 20% of about 100 surveyed RIA firms said they were considering selling or partnering in the next 12 months, so “you’re going to see a continued tension from succession that starts to continue to push the M&A market,” Kawal added.
Top Questions to Ask
Before starting out in the M&A world, it’s best to “take a step back” and answer a few important questions regarding your firm, according to Marty Bicknell, CEO and president of Mariner Wealth Advisors.
1. Why M&A?
“Why are you considering going down this route and making an acquisition?” Is it for geography, scale or talent? “Ultimately, what are you trying to have?” And “what are your non-negotiables going to be?” Bicknell asked.
2. What’s the Combined CX?
A key focus should be on the client experience, or CX, and making sure that what clients experience with the two firms “fit together and makes the most sense,” he said.
3. What’s the Value Prop?
Firm owners shopping around for RIAs also must ask themselves: “What’s your value proposition for the seller? Why on earth would they want to join you and be a part of your organization?” Bicknell said.
“Being able to lay out all of those things, that’s a ‘must do’ before you even consider a conversation” with another firm about an M&A deal, he said.
Put another way, the seller should define exactly what the deal brings to the buyer: “What are you going to be able to do for them?” asked John Burns, CEO of Exencial Wealth Advisors.
It may be that your firm can help them grow organically, or that you provide a “superior advisory platform and client experience and advisor experience,” Burns said.