Is RIA M&A Recession Proof?

I read with great interest a recent article from Mercer Capital titled “What’s Driving RIA M&A?” The firm noted how their previous prediction about the RIA M&A space (and likely one many of us would have had if we were pressed for an opinion) was that it would slow down with the high cost of capital. Yet, surprisingly, RIA deals only declined about 1% year-over-year in the first half of 2023, while general M&A activity declined more than 30%.

Why is there such disparity between RIA and ‘general’ M&A activity?

The Mercer team suspects, and I agree, that RIA deal activity is strong for four primary reasons:

1.     The RIA industry is highly fragmented. With more than 15,000 RIAs in the U.S., according to Investment Adviser Association’s 2023 Industry Snapshot, there are a lot of opportunities for consolidation, as larger RIAs look to acquire smaller ones, to expand their scale and reach.

2.     The RIA industry is aging. The average RIA owner is 56 years old, and according to J.D. Power, 20% say they are five years away from retirement. This creates a need for succession planning (read our piece, Why Ignoring Succession Planning Could Cost You Millions) and many RIA owners are choosing to sell their businesses to larger RIAs or private equity firms.

3.     The RIA industry is growing. Total assets under management (AUM) of RIAs grew from $20.26 trillion in 2000 to over $114.1 trillion at the end of 2022, according to Statista. Assets have increased in 18 of the past 21 years. This growth is driven by several factors including an aging population, the rise of the middle class, and the increasing popularity of self-directed investing.

4.     The RIA industry is seeing an influx of private equity investing. Private equity firms are attracted to the RIA industry because of its high growth and recurring revenue model.

By any measure, M&A transactions within the RIA industry have experienced significant growth rates far outpacing the overall M&A market. The question now facing buyers, sellers and their advisors is how long will this fast pace continue, and what happens when the market begins to rationalize?

The Eye on Private Equity

None of us have a crystal ball, but Private Equity activity in the RIA M&A space may be a bellwether of future transactions.

As Mercer points out PE is “beholden to their PE backers,” with obligations to put capital to use in pursuit of attractive returns. For such firms to continue raising funds to fuel additional RIA acquisitions, actual investment results will be questioned. If returns do not justify the risk, or successfully compete with other opportunities, then funding sources will slow, leading to a more selective deal environment.

Deal Performance Matters

Those of us on the outside of RIA M&A deals can’t really track the actual results of a particular acquisition. This is essentially a private-to-private market. We get the M&A deal headline but not the details. We see the numbers of transactions but are the buyers happy with the deals?

One thing I learned years ago is that excess capital tends to lead to over-paying, weaker deal terms and, in turn, potentially poor investment results.

When buyers realize they overpaid for a RIA, and/or sellers realize that joining a bigger platform wasn’t what they expected, they will act. Buyers may want to recover some of their investment. Sellers may want their independence back. We call this the “disenchantment dance.”

Years of consolidation within the financial services sector have demonstrated several trends: Buyers got bigger, and sellers got richer. There have also been a large number of well-documented deal failures leaving both buyers and sellers looking for an off ramp.

Tightening Terms May Slow Activity Down

Right now, despite the high cost of capital, we’re still seeing firms going for high multiples, but deal structures have changed. Two and three years ago all-cash deals were common, now we see a portion of cash paid up front, and a balance paid in installments over subsequent years. Revenue retention payments are made after a few years, and more equity is given as part of the transaction. This can still net out into strong deals for RIA sellers — but these new structures ensure sellers maintain the strong business that attracted the buyer to begin with.

Mercer says that “an elevated level of (M&A) activity is here to stay,” and while we agree one must question how long this pace will continue at high valuation levels and relatively attractive deal terms. Do trees actually “grow to the sky?”

Be Prepared 

Our message is simple: All RIA participants must carefully monitor market conditions and be prepared to address changes as they arise. At the end of the day, the question is: What is most important for your firm? Don’t let industry trends dictate when you act. I believe firms should always be prepared for action. These times require a well-articulated business strategy that will grow your firm’s enterprise value. Actively evaluate your options, be nimble and informed. When you decide to be a seller or buyer, you want to be sure it’s on your terms, no matter how many transactions have been completed this year.

---

This article was written by David Selig, founder and CEO of Advice Dynamics Partners.

An edited version of this article was originally published in Citywire RIA in October 2023.

David has over twenty years of experience in M&A, management consulting and financial services. He has authored two white papers on the subject of mergers & acquisitions for Fidelity Institutional Wealth Services and Schwab Advisor Services, and he is a regularly featured speaker on mergers, acquisitions, and succession at conferences and industry events around the country.

Why Ignoring Succession Planning Could Cost You Millions

You’ve built a successful RIA and created value for your clients. But have you considered what happens to your firm when you retire or can no longer work? Believe it or not, many business owners are not prepared.

In this article, we will discuss the following:

• Protecting & Enhancing Enterprise Value

• Succession Plan to Retain Talent

• Succession Plan to Retain Clients

• Who Will Take Over the Business May Surprise You

• Building a Legacy Takes the Right M&A Advisor

• Conclusion

One of our ADP clients, Lynn Ballou – managing partner of Ballou Plum Wealth Advisors, which sold to EP Wealth Advisors – explained that she was thrust into succession planning because her business partner, who was a few years older than her, simply didn’t want to work anymore. “She had been saying that for five years and I was saying ‘eh, it will all be fine.’ But then she threatened to take vacation days seven days a week, ha ha!”

Lynn said she believed that she would just buy her partner out. “But what shocked me, was what our company was worth. It was a good shock. It made me realize – why would I, in my 60’s, spend millions of dollars of my own money, not knowing how the market’s going to do or how my health is going to go? That’s nuts. I don’t want to take on that kind of risk. And it was obvious: we need a succession solution.”

Lynn’s experience is common in our industry. CEOs and managing directors love their jobs. Thoughts of retirement and not running their company anymore? Those are questions to answer tomorrow. Yet, in their recent Report on the State of Succession Planning in 2023, Sigma Assessment Systems Inc.’s data shows that many leaders underestimate the value of succession planning. For example, almost 50% think succession planning has operational benefits but no financial benefits.

Protecting & Enhancing Enterprise Value

Although it can be difficult to motivate and plan for the end of something when we are living within its present glory, succession planning is critical to the growth of your RIA. It isn’t just about building a legacy you can be proud of, it’s also about protecting and even increasing your RIA’s enterprise value — to benefit you of course, but also your staff, your clients, your family, and other key stakeholders.

Below, with more terrific insights from Lynn Ballou, I outline how the right succession plan can help retain talent and clients. I discuss how the buyer you may be expecting may not be the buyer you get – and why that’s a good thing, and finally why the right M&A advisory partner is key to a successful transition plan.

“I don’t believe in 5-year plans. The world is moving too fast,” Lynn told us. “You build an A++ business with the best team, and then when it is time to get to this point of sale, you’ll be ready. It’s so important to have a succession plan.”

Succession Plan to Retain Talent

A succession plan sounds like an ending, but it can actually create long-term continuity for staff. When your employees know the future business strategy of your RIA, and understand how their careers fit in with growth, they will likely be more motivated to stay with your firm.

Talent retention also makes your RIA more attractive to potential buyers. As Sigma says in their report, “Without a defined succession plan in place, a vacancy to a critical role can create confusion and be a massive risk to an organization’s stability.”

Many M&A deals include a percentage of the total paid up front and the remaining paid 3-5 years after the initial transaction date. Buyers pay a higher premium when they are more secure in the long-term value they are getting with a partnership.

When Lynn and her partner sold her firm, for example, they gave a good payout to employees. Partly because she knew their employees truly helped them build their company from the ground up, but also because management wanted to ensure they retained clients, “and retaining staff was the best strategy for that.”

Succession Plan to Retain Clients

When strategizing on succession, a lot of work will be done to understand your client mix. Not just for proper valuation, but to consider how your critical high net-worth individuals and institutions will react when their trusted advisers merge with, acquire or sell to a new firm. Understanding your clients’ potential future needs and expectations is harder when you are unclear about how you will support your clients for the long run.

“I call it the ‘friends at the supermarket’ issue,” said Lynn, about when her firm was acquired.  “Because I live in the same community where I work, a lot of my clients are neighbors and if I run into them in the vegetable department, and I’ve done them wrong by leaving them in bad hands, that’s really terrible. That’s the legacy. Do you feel you did everything in your power to find a fantastic, next-step solution for your clients.”

In fact, many RIA owners may assume that looking for the right buyer or partner starts with finding the right cultural fit, but Lynn recommends going deeper than that. Ballou and Plum had an initial deal almost completed, but they canceled at the 11th hour because they learned about activities surrounding a previous deal of the buyer’s that they didn’t agree with.

“People say they’re looking for a cultural match, and I’m not going to disagree with that,” said Lynn. “But culture is what culture is – one day you are all wearing surfer shorts to work or taking the staff to Starbucks or whatever it is… For us, it’s about an integrity match. Integrity is everything.”

Who Will Take Over the Business May Surprise You

Succession planning isn’t boilerplate nor is it cookie-cutter. While common approaches exist, the right M&A advisor with years of experience will help you understand all the potential succession paths to help you achieve your goals.

And what you think may be the obvious succession path forward may not be.

When Lynn and her partner were initially planning the future business strategy, they expected G2 and other employees would want in. “We had wonderful and exceptional people, honestly the best in the business, why wouldn’t they want to buy us out? We loved them. But — they didn’t want to own a business together.”

Lynn told me the story of an RIA owner who didn’t start succession planning early, assuming they would simply sell to their employees. Yet, when the time came for the owner to step down, the employees couldn’t afford to pay what the business was worth. And the owner was forced to essentially give it away.

“It can be stunning that employees don’t want to buy, or can’t afford to buy, but there all sorts of reasons,” said Lynn. “They may not see this as their long-term career or perhaps they know they will be moving their families to a new city down the line.”

When it comes to assuming G2 wants to take over your business, Lynn says she learned a valuable lesson from one of her many mentors: “Don’t even consider an internal succession plan unless someone on your team has taken the initiative to approach you. If someone doesn’t come up to you and really want it, don’t even pursue it.”

When you work with us at Advice Dynamics Partners, we discuss a range of ways to do succession, including internal succession, selling your firm, buying another firm, and merging with another firm. There are many options, and they are not mutually exclusive. Although your employees may not want, nor may not be able to afford to buy your firm, there are deal structures to ensure you get what your firm is worth, and your employees are adequately compensated. We will leave no hybrid approach unturned.

“We were saying ‘we can’t do this anymore…we don’t want to sell, we don’t want the hassle, we don’t want the liability.’ But ADP hadn’t given up on us. They met a firm that they really believed was the partner we were looking for.”

Building a Legacy Takes the Right M&A Advisor

A succession plan for your RIA is similar to creating a trust for your personal life. Your RIA is your biggest asset, and you need a plan to protect it. Still, many advisors think the succession plan journey will be turbulent and long. We believe the right advisory and transition planning firm can make it a smooth ride.

With Ballou and Plum, Lynn and her partner, were on the path with us (Advice Dynamics Partners) to find the right partner for a long time. As mentioned above, a potential deal didn’t go through, and at one point we had had serious discussions with 23 firms.

“At that point, a lot of us would say, ‘I’m just going to die with my boots on…’” says Lynn. “And that’s where we were. We were saying ‘we can’t do this anymore, we’ll just shut down, people will find another advisory firm, or we’ll refer them to another. We don’t want to sell, we don’t want the hassle, we don’t want the liability.’ But Advice Dynamics Partners (ADP) hadn’t given up on us. They met a firm that they really believed was the partner we were looking for.”

ADP has helped many RIAs find common ground and achieve their goals. We are masters at navigating the storms and ensuring management alignment around goals. As Lynn so kindly said about the deal with EP Wealth Management, “David didn’t give up on us, even though we almost gave up on him. That is the sign of a great partner.”

Conclusion

“I don’t believe in 5-year plans. The world is moving too fast,” Lynn told us. “You build an A++ business with the best team, and then when it is time to get to this point of sale, you’ll be ready. It’s so important to have a succession plan. It helped us to clean up the business, and when we started our transition, we had our act together.”

At Advice Dynamics Partners, we specialize in succession planning – specifically in M&A advisory, valuation services, and transition planning for RIAs, wealth, and asset managers. Although succession planning may seem like a maze of information to wade through, and loads of hurdles to jump, we will find the right path forward for you and your RIA.

Contact us today to learn how our experienced staff can help you create the right transition plan that will protect and enhance the enterprise value of your firm.

---

This article was written by David Selig, founder and CEO of Advice Dynamics Partners. David has over twenty years of experience in M&A, management consulting and financial services. He serves as a champion and advocate for Advice Dynamics’ clients, as he shepherds them through their complex transactions.

How Do I Grow My RIA with the Cost of Capital So High?

Winter 2023 was a bit dreary, and it wasn’t just the weather. Talk continued about a potential recession and the U.S. Federal Reserve made their 10th interest rate since March 2022. Things seem brighter in Spring: February, March and May increases were smaller than previous ones, and pundits say most of the Federal Reserve’s interest rate hikes may be in the rearview mirror.

David Selig, Matt Rozen and Rob Morrow working on a client valuation

Still, with the cost of borrowing money higher, buyers who need capital for growth through M&A may question whether now is the right time for a transaction.

Our view: RIAs should absolutely consider M&A — and specifically acquisition as a growth strategy — no matter what the Feds do. (Read Are you Predator or Prey about why challenging times make RIA growth and succession strategies even more important.)

Three reasons why an acquisition strategy is truly worth the costs for your RIA.

1. Strategic fit = more revenue: The acquisition target may have a complementary investment strategy or expertise that would add value to your firm's portfolio. By combining the two firms, your merged entity may be better positioned to offer a more diverse range of investment options to clients, which could ultimately lead to increased revenue and profits.

2. Cost savings: Despite the high cost of capital, there may still be cost savings through an acquisition. For example, the acquiring firm may be able to consolidate operations or eliminate redundant positions, resulting in lower costs and increased efficiency.

3. Access to new markets and talent: The acquisition target may have a strong presence in a market that the acquiring firm is interested in entering. By acquiring the target firm, the acquiring firm can gain instant access to that market without having to build a new presence from scratch. Plus, the target firm may have talented personnel or specialized expertise in new markets that would be difficult for the acquiring firm to attract on its own.

The cost of capital doesn’t need to impede your growth strategy: There are many players in the market, all with varying borrowing costs, who may be interested in acquiring or providing capital to your firm. When you have the right strategic playbook, you can get creative with financing.

5 M&A financing strategies to mitigate the impact of high interest rates and reduce the excessive costs of borrowing:

1. Cash and equity combination: Rather than relying solely on debt financing, successful M&A deals often involve a combination of cash and equity. This approach allows the acquiring RIA to utilize its existing financial resources while also leveraging the potential growth and synergies of the target firm. By using equity as part of the consideration, the acquiring RIA can reduce the immediate cash outlay and limit the impact of high interest rates.

2. Earn-outs and performance-based incentives: This approach involves setting certain financial or operational targets for the acquired firm. The consideration paid to the sellers is then linked to the achievement of these targets over a specific period. By incorporating performance-based elements, we align the interests of both parties and potentially reduce the need for large upfront cash payments.

3. Strategic partnerships and minority investments: Rather than pursuing a complete acquisition, successful RIAs may consider strategic partnerships or minority investments as alternatives. This approach allows for collaboration and sharing of resources, while minimizing the need for significant borrowing. By forming a strategic partnership or making a minority investment, the acquiring RIA can gain exposure to the target firm's expertise and client base, without incurring the full costs and risks associated with an outright acquisition.

4. Leveraging existing client assets: If the acquiring RIA has a substantial base of client assets under management (AUM), we may explore utilizing these assets to finance the M&A deal. For example, the acquiring RIA could offer the target firm's clients the option to transition their accounts to the acquiring RIA's platform. This increased AUM can provide additional revenue streams, enhance the firm's financial position, and potentially reduce the need for external borrowing.

5. Alternative financing options: Many RIAs today seek out private equity investments, venture capital, or strategic investors who are interested in the industry. These sources of capital may offer more favorable terms and conditions compared to traditional lenders, providing the acquiring RIA with more flexibility and potentially mitigating the impact of high interest rates.

These are just some of the ways we customize deals for our clients. So, whether you are merging, acquiring or otherwise partnering to grow your RIA, you shouldn’t be hindered by the current interest rate environment.

It’s always a good time to understand the right options to grow your RIA. If your firm is considering an acquisition or simply wants to discuss whether an inorganic growth strategy is right for you right now, we’re happy to start the conversation.

---

This article was written by David Selig, founder and CEO of Advice Dynamics Partners. David has over twenty years of experience in M&A, management consulting and financial services. He serves as a champion and advocate for Advice Dynamics’ clients, as he shepherds them through their complex transactions.

Are You Predator or Prey?

Challenging times make growth and succession strategies even more important.

Are you ready?

Today’s RIA marketplace is ever-changing and fast moving. You don’t want to be left behind.

We’re seeing an extraordinary amount of M&A activity in the RIA space right now, which may seem strange given the macroeconomic environment and market volatility. Yet it’s paralleling what we saw beginning way back in the 1970’s with the consolidation of the banking industry: larger banks struggling with organic growth saw an opportunity to increase market share and accelerate growth by adopting aggressive acquisition strategies. Smaller banks saw an opportunity to join larger more powerful franchises to remain competitive. In addition, larger banks were paying handsomely — often 3-4X book value — to acquire well positioned regional players. Small bank shareholders faired very well.

At the end of 2021, a firm’s 12 to 24-month growth strategy might have been: “Let’s not upset the apple cart. We’ll keep riding the wave of 12+ years of low interest rates and massive government stimulus packages.” Cheap money drove markets higher creating a false sense of accomplishment at many RIAs.

Then 2022 happened. The post-pandemic economy and supply chain issues spiked inflation, and the U.S. Federal Reserve made eight separate interest rate hikes (so far). Today, the stock market is unpredictable, customers have real options to grow wealth beyond equities, and an RIA’s “Stay the course” strategy for success may need a rethink. Additionally, the recent failure of Silicon Valley Bank has created more market volatility, and more hesitation, making AUM growth even more difficult. Equity markets don’t like the unknown.

Growing your RIA firm even in challenging times

Many RIAs struggle with two critical questions: How do we grow AUM, and what is our succession plan?  

AUM is essential. It drives revenue, EBITDA, and in turn, valuation and enterprise value. Yet, organic AUM growth may not be as easy today as it was 12-15 months back. With today’s high interest rates, a firm may not attract as many new clients because people are keeping more cash, putting it in money markets, CDs, and even savings accounts (!). Fixed income investments are now very reasonable options. Where last year a firm may have focused entirely on organic growth, 2023 may mean considering buying, selling or merging with another firm.

When it comes to succession, today’s macroeconomic environment suggests previous plans may need to be reassessed as well. There are many new players in the market, such as private equity firms, who tend to have more capital but also different acquisition objectives. If your RIA wasn’t considering succession plan options until owners approach retirement age, you may be missing an opportunity, because the right succession plan can be key to growth now as well.

Whether growing AUM or determining the future trajectory of your firm, most RIAs see three paths forward:

1. Keep things “as is” and grow organically.

“We’re comfortable, we’re not sellers. We’re happy.” But what if you learned there are buyers out there who are paying 14X EBIDTA? This might warrant a conversation; yes, you may be on the right course, but perhaps not. The stakes are too high not to look carefully at all your options. But as outlined above, we don’t recommend the “what worked before will keep working just fine” strategy without reevaluating based on current market conditions.

2. Buy another firm.

Looking at options in depth may uncover the path we call “filling out your dance card.” Perhaps you want to bring in talent where you don’t yet have expertise, such as real estate or emerging markets. Perhaps you want to grow AUM more rapidly while also cutting costs by the selective consolidation of operations. Maybe your RIA’s brand is growing, and a complementary investment strategy added to your firm’s portfolio is best for your clients who are looking to diversify.

3. Sell or merge with another firm.

It may be time for you to monetize your significant investment — cash out of the assets you’ve built. Perhaps your firm has talent in the trenches but not in management and you don’t know who will succeed you. Selling can be “de-risking,” ensuring there is a strong plan in place to keep growing. Or perhaps you want to give your clients a better platform and more options, so you join with another firm that’s strong in alternative investments. Larger organizations often create new and exciting career growth opportunities for owners and employees alike.

There are many options for the right growth strategy, and each is as unique as each RIA. Our primary recommendation is to be proactive, because at the end of the day, the biggest question is:

Are you predator or prey — and do you know?

There is no one-size-fits-all plan when it comes to successful growth of your RIA, but don’t unconsciously become prey: complacent, waiting for something to happen without planning for action, and unprepared for what might be coming.

If your firm is clear about its growth strategy combining internal growth with selective acquisitions, then you are a predator. You are in a proactive mode, constantly looking for growth opportunities.

If you aren’t a predator, you don’t want to wait too long to determine your best strategy — as rates continue going up, equity markets continue to be volatile, and your firm continues to age — you will still be in the game but playing by others’ rules and on their timetables. When you decide to be a seller or buyer, you want to be sure it’s on your terms.

Today's market unpredictability and sharply rising interest rates makes it even more difficult to see the best path forward. ADP strongly recommends that clients not be deterred by the current market/rate conditions but continue to actively evaluate their options. What was the right strategy for your firm last year, may not be the right strategy today. You need to be nimble and informed, and in a rigorous analytical mindset. You can’t just sit on the beach and watch the clouds pass. These times require a well-articulated business strategy. Do you have one?

ADP has years of success and deep domain experience in the development and implementation of strategic growth and succession options for clients. Let us help you better understand the issues at hand and guide you through a rigorous process to determine what is best for you and your stakeholders. When you are ready to discuss strategic options for your firm, don’t hesitate to reach out to us for more information.

---

This article was written by Robert P. Morrow III, Senior Advisor to Advice Dynamics Partners, who works with our RIA clients as an executive coach and communications expert. When senior partners at a wealth advisory firm need an effective communication strategy to explain an upcoming merger to employees and clients, Rob is our go-to. Aligning interests among all stakeholders on a strategic transaction is paramount. Rob helps gain alignment through a thoughtful, well-crafted process honed over decades.

Aligning Stakeholder Interests in M&A - Part II

Testing for Alignment of Interest Before Setting RIA M&A Strategy

Until issues of strategic importance arise at your Registered Investment Advisory firm, it’s possible for many partners and key employees at RIAs to operate with relative autonomy and independence. Yet when mission critical issues present themselves, lack of alignment is not a desired posture. Why?

The critical path of most RIA M&A transactions involves attracting one or more qualified bidders, successfully negotiating and then closing the transaction, and finally the all important post-transaction “earn out” period. If you are joining another firm, all along the M&A process your new partners will be looking at how well your team works together:

• Do you agree on the firm’s strengths/weaknesses?

• Do you have a shared view of how the proposed transaction offers a Win-Win?

• Is there a shared sense of professional commitment and energy?

These are big questions, and could derail a successful transaction if they are not discussed prior to the M&A process. Thus it’s critical to understand to what degree your firm has alignment of interest BEFORE you begin serious strategic discussions.

This alignment can be achieved by a thoughtful approach, asking stakeholders how they feel about key issues, such as how does the firm reach sustainable growth and can it be done organically, or do people think they need to seek equity capital.

---

These are just some of the questions to raise. Read  “Aligning Stakeholder Interests in M&A - Part I” for more.

---

To get to the right answers, start with the most senior partners and work through all of the important employees. Note that it’s not advisable to approach your clients directly around issues of alignment at this point — this will come later in the process.

To help get your firm to alignment, it will help to understand motivations. All members will be impacted by at least three critical areas: 

1. Financial 

2. Professional 

3. Personal 

Knowing and understanding the needs/wants/demands of each individual is the beginning of understanding where the alignment of interest gaps exist and how big they might be. Note that it’s common to have a wide range of ideal outcomes among team members who are different ages, have different seniority, equity holdings and views of how active they want their professional involvement after the firm merges or acquires another.

And let’s be honest, these may not be the easiest discussions to have since decisions will be made that will affect everyone’s livelihoods. There is no “right” way to have these discussions, besides being open and honest. 

Yet, the best way to test for alignment among your firm is with professionals who have been through the process many times. Having a neutral 3rd party in the room, so to speak, who knows the pitfalls and gotchas, who has your firm’s best interests in mind — for all your stakeholders — and will help ensure everyone is heard and the best decisions are made.

Advice Dynamics Partners strongly endorses the importance of Alignment of Interest for your firm before making any major strategic RIA transactions. Having worked with firms, and this blueprint, for more than 10 years, we stand ready to assist you all along the way.

Reach out to us for more information about how we can help align your firm for future growth.

---

This is part 2 of our article series written by Robert P. Morrow III, Senior Advisor to Advice Dynamics Partners, works with our RIA clients as an executive coach and communications expert. When senior partners at a wealth advisory firm need an effective communication strategy to explain an upcoming merger to employees and clients, Rob is our go-to. Aligning interests among all stakeholders on a strategic transaction is paramount. Rob helps gain alignment through a thoughtful, well-crafted process honed over decades.

Aligning Stakeholder Interests in M&A - Part I

Alignment of Interest: Why it Matters Even More in Today’s RIA Market

A-lign-ment = a position of agreement or alliance

“Alignment of Interest” describes an arrangement or relationship in which all parties stand to benefit from a particular outcome.

Today’s dynamic and fast paced RIA marketplace is forcing many senior management teams to grapple with a series of strategically important questions such as:

• How do we achieve sustainable growth?

• Do we have the financial ability and human capital to grow faster organically?

• Should we consider BUYING another firm?

• Should we consider SELLING to another firm?

• Should we seek equity capital from a financial sponsor?

• Do we have a viable succession plan in place?

If your firm is contemplating any of these strategies, Alignment of Interest among key stakeholders and decision makers is critical. True alignment (agreement) on a wide range of important objectives requires some work, and can be difficult, but is often the difference between a highly successful RIA transaction and one that falls far short of the mark.

Put another way: the cost of lack of alignment can be massive.

Here is Advice Dynamics Partners’ blueprint to ensure RIA firms have Alignment of Interest:

1. Determine who needs to be aligned

2. Define the most important issues to get agreement on

3. Test for true alignment and solve for the gaps

Who needs to be aligned?

It isn’t just your firm’s management that needs to be on the same page. You’ll want to ensure the following people are all part of the process. 

• G1 Partners / equity holders

• G2 Partners / equity holders

• Key employees

• Your clients’ interests

What issues require alignment?

• Preferred growth strategy

• Firm value

• Desired deal structure

• Succession timing for all partners

• Ideal composite of an external partner

• Future needs for clients.

• Desired career paths and growth opportunities for staff

Advice Dynamics Partners strongly endorses the importance of Alignment of Interest for your firm before making any major strategic RIA transactions. Having worked with RIAs — and this blueprint — for nearly 15 years, we stand ready to assist you all along the way. 

Reach out to us for more information about how we can help align your firm for future growth.

---

This article was written by Robert P. Morrow III, Senior Advisor to Advice Dynamics Partners, works with our RIA clients as an executive coach and communications expert. When senior partners at a wealth advisory firm need an effective communication strategy to explain an upcoming merger to employees and clients, Rob is our go-to. Aligning interests among all stakeholders on a strategic transaction is paramount. Rob helps gain alignment through a thoughtful, well-crafted process honed over decades.