Prepare to Acquire: Identifying Acquisitions in Wealth Management

The wealth management industry is facing unprecedented turnover as the baby boomer generation begins to retire. While many practices grow by a rate of 10-15% of their assets under management each year, there is the opportunity for an acquisition of 20-50% of your AUM total or more. This is intriguing for economies of scale, firm notoriety and branding, and additional income, yet in an environment where there are 50 buyers for every one seller, how does an advisor set one’s practice apart from the herd?

The first step in identifying a practice to acquire is to put yourself in the shoes of the seller. When a seller is qualifying buyers to take over a lifetime of work, they are going to be extremely selective as to whether the buyer has the service capacity, leadership qualities, and financial backing required to achieve the full value of their practice.

A qualified buyer must demonstrate the exact services his or her firm provides and how they are experienced by the individual client. They must have a model that is consistent and repeatable as the scale of the business increases via the acquisition and the inevitable referrals that come with a well-executed practice purchase. This buyer will also answer to the dependency upon its leaders with this service model. Can the business staff handle many or all of the clients’ needs if the owner is away on vacation or in a meeting? If you have not already done so, I encourage buyers to go through a practice tune-up by hiring a business consultant to quickly identify any gaps in your service model or opportunities to improve.

Buyers are often taking on one or more new employees in an acquisition. What is the history of management and staff retention in a buyer’s business? A seller will want to know that his/her trusted employee(s) are going to be taken care of long after they have left the organization. For many small to medium sized business owners, employees are an extension of the family. There is an intense bond, and loyalty that must be demonstrated on behalf of the buyer for a quality acquisition.

Often, the most important piece of any successful acquisition is whether the seller has faith in the buyer to pay for the transaction. Many sellers walk away or resist an outright sale for the fear that they may not be able to achieve the full purchase price if the buyer does not handle the clients properly. Often, this is unlikely, as the buyer brings many new features and intellectual capital to a merger; however, it is a real fear that must be addressed.

As a buyer interested in acquiring a quality business, follow these simple steps to set yourself apart from a crowded field of buyers:

  1. Build your Business Profile – Create a 1-2 page marketing piece that demonstrates your firm’s service model, staff structure, and mission and vision for the business. Be clear, concise, and include a chart or infographic on your service levels. Add a note about why you built your business and what your philosophy is toward the industry.
  2. Share to Receive – Come prepared to any meeting with a prospective seller with the last 3-5 years of revenue, Assets Under Management, and number of households. You are going to want to see this information from the seller. In order to build trust, demonstrate your willingness to share details about your business and the seller will establish a trust bond more quickly.
  3. Bank Financing – Wealth management practices can now be purchased using bank loans and are based on the cash flow of the buyer and the seller’s practice. Take the steps to have pre-approval on bank financing based on your own personal revenue and credit.

Establishing professional trust and respect is a key step to a successful acquisition and will make any ongoing dialogue and negotiation with a seller much easier. Come to a meeting prepared, just as a client would want you to come to a meeting prepared. Starting the conversation off correctly with a seller decreases the time it takes to build trust, therefore dramatically decreasing the time it takes to complete a successful acquisition.