As seen in The Wall Street Journal, October 7. 2013
Being Prepared to Acquire Another Firm
By Veronica Dagher
For many financial advisory firms, bigger is better.
One of the best ways to increase a practice's scale and profitability is to acquire another firm.
But just because advisers want to make acquisitions, it doesn't mean they're ready.
Below, advisers and practice-management experts weigh in on what steps a firm needs to take to be
prepared to buy another as well as the pitfalls that can scuttle an acquisition.
Christine Gaze, director of practice management, TD Ameritrade Institutional
On adviser readiness:
Firms need to have a clear, written business plan and strategy in place before they make an
acquisition. Advisers also need to have short and long-term goals for the practice and know the tactics
they will need to take to achieve those goals.
Red flags:
It can't be all about money. Partnerships often fall apart if the acquirer views the acquiree as a mere
path to greater assets. The reason: if the acquiree
feels like "a number" rather than a contributor to
the new organization, it can fuel resentment and
distrust.
David Canter, head of practice management and
consulting, Fidelity Institutional Wealth Services
On adviser readiness:
The acquirer needs to be able to scale their
business efficiently so they can handle the added
clients without their practice going haywire. They
should have processes in place that make their existing business run smoothly-- including on-boarding
procedures, portfolio management and reporting.
Red flags:
A lack of financial resources. In order to move efficiently through an expansion, advisers should
determine funding early in the process so they don't waste anyone's time. Cash, equity, seller-financed
notes and earn-outs are typically the four main ways an adviser might structure a deal.
Corey Kupfer, director, entrepreneur services, MarketCounsel
On adviser readiness:
Advisers need an accurate understanding of their firm's value. This will help them minimize the risk of
undervaluing their practice or paying too much for the other firm.
Red flags:
Firms that can't answer what value they bring or "pain point" they can help resolve for the acquiree will
have a tough time making a deal. They need to answer if they're offering the acquiree a better platform,
a more lucrative exit strategy or the ability to work reduced hours, for example.
David Selig, chief executive, Advice Dynamics Partners
On adviser readiness:
An acquirer needs to have a succession plan in place. If there are partners, they all must agree that an
acquisition is the right strategy for the firm.
Red flags:
"Why would a firm, in all likelihood, sell in order to solve for succession and merge into your RIA if you
don't have your own succession issues solved?" he asks.
Al Depman, practice management consultant
On adviser readiness:
The values of the firm you're targeting should match your own values. Do both practices share a
common vision for how clients should be treated? Is the seller willing to personally hand over the case
files and give his blessing to the deal?
Red flags:
The seller's client files are a mess and the firm is having financial problems. There are compliance
issues in the seller's history.
Derek Holman, managing director, EP Wealth Advisors
On adviser readiness:
Know what you want in a target. Without identifying what you're looking for in a firm, negotiations will
wander and lose direction.
Red flags:
Different investment styles can get in the way of a deal. Mr. Holman has also seen deals in the ninth
inning get derailed because data-conversion costs were too large and too time consuming. "This could
have been identified much earlier on," he says.
Jeff Concepcion, chief executive, Stratos Wealth Partners
On adviser readiness:
The adviser listens to and understand the seller's motivations and works for a deal that suits both
parties.
Red flags:
Advisers need to staff their business and create systems not based on where they are, but where they
hope to be. If they're not willing to take this risk and aren't confident they can ramp up their revenues
after the acquisition to cover the excess overhead, they may not be ready to acquire.