Scott Danner, Head of the Legacy Division at Steward Partners, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the two goals of advisors looking to sell their firm.
There are two types of M&A in the advisory business: one where advisors are looking for succession planning and an exit from the business, and another where advisors are looking to accelerate growth and delegate the operational tasks of the business. The entire team at Steward Partners are equity shareholders in the firm. All of the partners in the firm are focused on the bigger picture and helping the firm grow. 70% of deals in the industry are still backed by private equity firms.
For advisors seeking to exit the business, the focus will be on the process of transitioning their clients to the new firm. Industry-wide, the average age of advisors is 60, while selling advisors may be even older. For clients to have long-term continuity, the acquiring firm should have advisors who are substantially younger than the advisors exiting the businesses.
Danner notes that the older generation of financial advisors believes that client acquisition comes from their skill in investment management. Younger advisors understand the importance of technology, whether it is client-facing or using artificial intelligence for operations and investment management tasks. These tech tools can make a firm more efficient and free up time for advisors to spend with clients and prospects.
While many advisors are looking at M&A for succession planning, a growing number are opting for strategic partnerships to accelerate growth opportunities without the intent of soon exiting the business.
In the “sell and stay” strategy, advisors look to accelerate growth while having the acquiring firm deal with technology, human resources, back office, and compliance issues. These advisors may be able to accelerate their revenue from the $1 to $5 million range to the $5 to $20 million range.
Combining two firms can be a mistake if there isn’t a cultural fit and a commonality of business practices between them. In order to consummate a deal smoothly, participants are encouraged to work with bankers and attorneys experienced in the merger process so that they can fully understand all the transaction details.
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