M&A activity is still at an all-time high, inspiring many advisers to sell their registered investment advisor practice or wealth management book of business.
RIA merger and acquisition activity had another record-breaking year last year, with some sources reporting 242 transactions in 2021. According to available statistics, this is up 52% from 2020, when 159 deals were completed.
While the numbers are encouraging to those considering a sale, selling a firm you’ve worked hard to build and protect over the years is not necessarily as easy as it looks. The process takes an immense amount of patience and preparation, as well as previous experience with deal-making and knowledge of securities laws and regulations.
To ensure that each party is satisfied with the transaction, our M&A experts advise owners to keep three points in mind.
- Do BrokerCheck disclosures ever fall off automatically?
- Weaponized Form U5
- Investment Adviser Representatives (IARs) Must Complete Continuing Education Program To Maintain Registration
- FINRA’s expungement reform takes a turn for the worse
- Do you have a dedicated chief compliance officer?
- If I’ve been terminated, how long will it be before a Form U5 is filed?
1. Examine your motives.
Even with a red-hot M&A market, this may not be the best time to sell your practice. Selling your practice is a huge endeavor — one that should be well thought out and expertly timed. Don’t sell your practice for the wrong reasons or simply to hop on the bandwagon.
Before you make that decision, create a list of your goals and objectives. This will help you to better navigate the intricacies of a sale and to be more confident in the transaction.
Sometimes, rather than selling the entirety of a business, owners will pursue a partial sale or take on a minority stakeholder. Another option is to outsource internal RIA services, such as technology, asset management, financial planning, marketing, etc. Depending on an advisor’s personal and economic circumstances, one of these options may be a better fit.
Choosing whether or not to take on a full or partial sale depends mostly on the answers to three key questions: what would you like to accomplish with the final transaction, what does your timeline for departure look like, and how much control do you want to keep?
2. Consider your alternatives.
Do you have a specific person in mind or an idea of the type of buyer to whom you’d like to sell your financial practice? If you’re considering selling to another FA in your practice, be aware that many advisers neglect to plan far enough in advance to actually make that a feasible option. Advisors can easily end up in a situation where either the heir-apparent gets weary of waiting and leaves, or their firm becomes too pricey as it grows in size and AUM. Once a firm’s AUM surpasses $500 million, selling internally becomes increasingly challenging.
Reporting sources claim that firm valuations have consistently risen since 2008, eclipsing previous highs in recent years. In today’s market, a founder or management team who chooses to sell externally may obtain twice as much as they would if they were to sell internally.
According to Dimensional Fund Advisors’ 2020 Global Advisor Study, which gathered data from almost 1,000 independent advising companies worldwide, failing to plan ahead is the number one reason why owners have difficulty selling their book and reaching their goals. Only 44% of firms currently claim to have a succession strategy in place, while 73% of financial advisors have not prepared a succession plan.
3. It’s not just about the money.
What resources and experience will your next partner bring to the table? What will your business look like after the acquisition?
We’ll be the first to tell you that not every buyer is the same. What a buyer chooses to keep or get rid of differs from person to person. Some may follow a more “my way or the highway approach,” while others may support the seller in keeping their brand, technology, and employees. That’s why it’s so important for sellers to come up with a working model that meets all of their needs, prior to choosing a buyer.
Other questions to ask yourself include:
- What do you want your role to be after the acquisition, and how much input do you want to have in decision-making?
- Will the sales team have a voice at the management level?
- How will a sale affect your employees and clients?
- Does the acquiring firm have adequate transition services?
If you’re ready to grow your practice, finding a mutually-beneficial collaboration is of the utmost importance. Knowing that a buyer is committed to expanding your goals and client base will provide your company with the space and resources it needs to succeed. After all, whoever you choose to allow to purchase your firm will ultimately be the one to carry on your legacy.
Find a knowledgeable team to advise you throughout the process.
AdvisorLaw has proven experience in successfully navigating and completing these types of transactions for financial advisors, wealth managers, and RIAs. Our team can handle all aspects of your transaction — from valuation to closing — in one, centralized location. We are a one-of-a-kind M&A consulting firm that was built from the ground up, with business owners in mind. We offer a unique perspective of the industry’s landscape because we represent advisors in all parts of the process, including valuations and sourcing buyers and sellers.
Clifton Larson Allen (CLA), a consensus perennial top-10 CPA firm, collaborated with AdvisorLaw in the development of our valuation tool, which is customized to value wealth management practices. In addition to book appraisal, our reporting provides SWOT (strengths, weaknesses, opportunities, and threats) analysis, industry comparisons, deal scenarios, hypothetical tax scenarios, and more — at no charge to the seller.
In addition to merger and acquisition services, AdvisorLaw also offers disclosure expungement advice. For more than a decade, our team has been effectively eliminating erroneous and fraudulent disclosures from the public record. We recently achieved our 2,000th disclosure expungement. We can help increase your sell price by removing negative disclosures from advisors’ records. When you want to make the most of your advisors’ one chance at expungement, trust the experts.
Are you ready to take the next step and begin the process of selling your business? If so, contact AdvisorLaw today for a complimentary consultation.