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As operational and technology consultants, we are contacted at least three times per month from larger RIAs saying, “A friend of mine just bought a $100 million practice – I want to do that too!” This is a common response from aspiring buyers as the industry is beginning to consolidate based on advisor demographics and the potential for literally trillions of dollars in AUM to be up for grabs is putting stars in everyone’s eyes.

Strategically, if you want to take your firm to the next level, pursuing an inorganic growth strategy makes a lot of sense (see: PFI Advisors’ M&A White Paper, “Becoming a Professional Buyer”).  However, if it were so easy, then everyone would be doing it.

To illustrate this point, I then ask for their pitch to advisors… Why should they join you?

The advisor on the other end of the phone will almost always go immediately into his client pitch.  I stop these advisors every time and say, “That’s a great pitch to your end clients, but that is not your advisor pitch.  If you are going to get into the M&A game, you need to make the mental switch from B2C to B2B sales.  It’s a completely different ballgame.”

A presentation to advisors, as opposed to clients, should be about the back office and infrastructure capabilities of your firm.  Advisors interviewing you as a potential landing spot for their business are listening for how you will make their lives easier:  Can you take away the administrative hassles they have been dealing with while running their own business?  Can your current infrastructure handle the increased number of clients and accounts that this merger will add to your workflows?

Having had this conversation for several years, I was extremely impressed with Timothy Stinson’s recent article in, “Why Your Firm’s Infrastructure is Key to M&A Growth.”  Timothy astutely states, “In addition to the variables that typically influence deal-making in this space – such as culture, organizational structure and client synergies – in this new fiduciary era it is increasingly clear that having the right wealth management infrastructure will also be a key differentiating factor in M&A deals.”  He continues by saying, “[Back office] tools that are a mishmash of multiple loosely connected parts typically result in a poor client experience, and given the expectations of today’s increasingly tech-savvy [clients], that’s a risk that no advisor should take with their business.”

In our own experience, we have witnessed failed acquisition attempts where the seller concludes, “My back office is in better shape than the potential buyer’s – why on earth would I join their firm and take a step back technologically?”  Even with successful acquisitions, when we have worked with both firms to integrate systems and technologies, we don’t assume the larger firm necessarily has the “better” technology and processes – many times we recommend our clients keep a CRM or a financial planning tool that the acquired firm brought to the table (see: PFI Advisors’ InvestmentNews article, “Solving Operational Issues from M&A Transactions”).

In his article, Timothy defines a successful merger as, “The ability of the purchaser to realize the ongoing revenue streams from client relationships that stick around after a deal has been executed.”  Therefore, he concludes, “Sellers need to seek out buyers that have scale, resources and expertise to comfortably incorporate a large number of clients into their practice.”

Timothy then provides three questions for would-be sellers to ask potential buyers before continuing with merger discussions:

  • How many custodial platforms are you working with? To put this into my own words, can your firm accommodate data feeds from multiple custodians and provide timely, seamless portfolio reporting to clients?
  • Where and how are your investment programs sourced? I believe the root of this question is, is the investment process at your firm easy to convey to clients?  And probably even more important, does your investment platform offer sophisticated products and services that I didn’t have access to before joining your firm?
  • Does your platform deliver a delightful client experience? Timothy points out, “Today’s consumers expect collaborative decision-making, transparency and easy-to-use tools/apps that provide worldwide access.  Delivering these experiences is incredibly difficult, requiring advisors to meld technology, people, and process…but advisors who can’t deliver them consistently will see their business erode.”

 Advisors who have not yet acquired another practice have not yet made that necessary mental shift.  They have spent their entire career focused on the client experience and carving out a particular client niche to make their prospecting efforts more successful.  They have oftentimes built their firm around customized systems and reports to provide clients a high-touch experience.  In order to successfully compete in the M&A game, advisors must shift their thinking from “individual customization” to “scalability & efficiency” to provide a high-touch service to a larger client base.

With the aging demographics of the wealth management industry, coupled with the increased regulatory burdens being placed on smaller practices, more advisors will be searching to join a larger RIA in the coming years.  As Timothy concludes his article, “This will either be a chance to achieve growth by acquisition or an enormous missed opportunity for those who may have the interest and all the right intentions but not the right wealth management infrastructure in place to capitalize on this trend.”

To learn more about how we can help you think through your options and get you into the M&A game – please contact us at or 424-336-9750.