Three Tips When Buying a Financial Advisory Practice

Three Tips When Buying a Financial Advisory Practice


Three Tips When Buying a Financial Advisory Practice

By: Charlie Latimer, Director of National Recruiting
Published September 19, 2018

Are you in the market to grow your financial advisory practice inorganically through acquisitions? You are not alone! In fact, we have been in a seller’s market for some time, where there is a much higher ratio of buyers to sellers chasing a limited supply of deals. Clearly, selling advisors have the upper hand since they possess something that many want, and are highly motivated to maximize their valuation by shopping for the highest bid. It’s not difficult to imagine the frustration endured by Merger & Acquisition (M&A) consultants on the front lines of these courtships, as a perpetuating process of “slow motion – speed dating” unfolds before them! Clearly, the end game is there, and deals do get closed, but perhaps buyers could benefit from a new approach to increase success rates, where total alignment with the seller is achieved.

Here are a few thoughts and perspectives (“beyond the money”) that buyers should consider in their negotiations and approach to sellers that could help promote their desired outcome.

  1. PAY ATTENTION TO WHAT THE SELLER IS LOOKING FOR
    Put yourself in the shoes of the seller. Advisors are professional listeners, much the same way as mental professionals are. They are not only trained in solving problems for clients across every aspect of the client’s life and unique situation but also demonstrate empathy. Buyers should take a page out of that playbook and similarly interact with sellers, unearthing a path of information discovery, including needs, desires and fears. The seller’s most subtle queues and details could be the glue that keeps a deal together to the close. Sellers, like clients, want to be understood, even if they are not telegraphing that. Buyers need to recognize when they have uncovered one of these signals and demonstrate to the seller that they are understanding them.

  2. THINK ABOUT CULTURAL ASSIMILATION
    Understanding that the seller’s culture is an extension of their personality; an advisor’s personality literally transcends every aspect of their firm’s culture. Advisors engage their staff in their own unique way and set the tone in the work environment. They also have a vision and sense of purpose for how their business should operate. Buyers need to understand these aspects that drive the culture and the personality of the firm as an entity. It’s not uncommon for sellers to get cold feet after prolonged negotiations when they feel the buyer will not “carry the torch” they have created in some way, or disassemble their life’s work. Deals tend to fall apart when there is cultural misalignment, even when there is a consensus on economic valuations. Sellers can sometimes also fall back on the rationalization that hanging on to the business for just a few more years will have a similar economic outcome as selling the business today, so what’s the rush?

  3. MAKE YOUR CASE
    The buyer’s client service model should be an upgrade. Buyers need to effectively communicate to the seller how the acquiring firm will better serve their clients. That is, the deal has to be accretive in terms of service value to the end clients. The buyer should also be able to demonstrate how their operational scale, technology, processes, human capital and deliverables will create a win for end clients that can be easily communicated. The deal needs to develop a sense of excitement and advancement in the eyes of the clients. Every party has to win!

Sellers have the latitude to allow themselves to be courted by multiple buyers to gain a relative understanding of what is available to them. They are simply shopping for the right buyer as much as the buyer is shopping for the right seller. Indeed, everyone has a price and sellers may overlook certain buyer qualities for a premium valuation. However, finding buyers with capital is the easy part – money is cheap. Finding a qualified buyer that fits the dimensions noted above could well be the part that is missing in most deals. Counterintuitively, buyers are effectively selling themselves to the sellers since the sellers have more choices in buyers and as such, they need to separate themselves from the pack, think outside of the box and carefully identify what the seller cares about.