7 Critical Steps to Becoming a Professional RIA Buyer

November 28, 2016, by Matt Sonnen
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As conference season winds down in the wealth management industry, everyone seems to be discussing the “mega trends” that are leading to consolidation in the RIA space. From aging advisors, to low-cost online competition, to more strict regulatory requirements increasing the overall cost of doing business, savvy buyers are able to capitalize on these trends in order to grow assets and acquire talent through aggressive inorganic growth strategies.

In our consulting work with RIAs, we often hear, “My buddy just bought a $100 million firm – we want to do that!” Setting aside financing and deal structure, we often examine these firms and realize that they aren’t quite yet prepared to embark on M & A strategies as they don’t fully understand, nor are prepared for, the complexities involved in doing deals and integrating the two firms in order to realize the desired synergies. What many RIAs don’t seem to understand is that in order to capitalize on this consolidation movement, they will need to increase their technology investment, management capacity, communication skills, and operational infrastructure in order to succeed.

Outside of the traditional aggregators and platform providers, many stand-alone RIAs have become “professional buyers” on their own. According to research by Devoe & Company, 89% of RIAs that made an acquisition in 2015 had already completed at least one previous transaction. The competition for acquiring RIAs is becoming as intense, if not more so, than competition for end clients. Ask for a show of hands at your next conference for who considers themselves a buyer, and over 80% of the room stands up, while less than 10% of the room will indicate their willingness to sell.

Just as firms do when hunting for their next client, RIAs need to ask themselves, “What sets us apart? Why would an advisor/ firm want to join us?” Dan Seivert of ECHELON Partners states, “Today we would have a lot more sellers engaged in transitioning their firms, however, they get turned off by the unimpressive buyers they run into.”

We recently interviewed four multibillion-dollar RIA serial acquirers as part of our research in developing an in-depth white paper on this subject and asked them for their best ideas and lessons learned in their journey of using M&A to fuel their growth. How do they separate themselves from the acquirer pack? They provided us with 7 key lessons learned, or “table stakes components” that firms need to have developed in the race to acquire RIA firms:

1. A compelling value proposition
2. Technology and operational expertise
3. Multi-disciplined leadership team
4. Management capacity for deals
5. Transparent compensation structure
6. Strong, defined culture
7. Transition support

“If you are a small firm doing it all on your own, you are a ‘jack of all trades and master of none,” said Brent Brodeski, CEO of Savant Capital Management. “At Savant, we have a whole lot of ‘masters’ that are there to support client-facing advisors,” which allows them to concentrate on the portions of the business they love and do best. Additional value proposition messaging advice comes from Jack Peterson, Managing Director of Summit Trail Advisors, who focuses on employee-based advisors. “Wirehouse advisors are stuck with outdated technology – we are big believers in using technology to drive productivity and enhance the client experience.”

Justin McNichols, CIO and Principal of Osborne Partners Capital Management, LLC states, “At our size, we can offer advisors the same type of office life they would experience at the large institutions, but with more freedom and without the fear of a constantly changing compensation package.” Jonathan Foster, President and CEO of Angeles Wealth Management likes to leverage the $27.5 billion of assets under advisement (as of May 31st 2016) and the firm’s “Tiffany & Co.” reputation and institutional investment process to attract advisors. “We are a great home for advisors looking for new business opportunities, a more robust investment offering, and the opportunity to help build an elite organization,” he says.

Without these seven components, would-be sellers will not feel compelled to join an organization, nor will they feel they are gaining leverage and growth opportunities beyond their current infrastructure.

To learn more about this research, download the entire white paper here

This article originally appeared at IRIS.XYZ

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