In recent years, most of the merger and acquisition trends in the financial advisory space were big deals involving large firms. However, future M&A trends may be smaller deals, and that could benefit mid-sized independent advisors looking to monetize their business, said WSR’s CEO Larry Roth, who is also Managing Partner at RLR Strategic Partners, in a recent interview hosted by Sheryl O’Connor, CEO and Founder of Income Conductor, and Marc Butler, Founder and CEO of Wealth Management GPT.
A few years ago, most of the M&A headlines were of large RIAs and broker-dealers being sold, but today, most of the consolidation at that level is done. Organic growth for the large firms is difficult to achieve, owing to their size, so to continue their growth, these big firms are open to smaller deals, Roth said in a wide-ranging interview on Income Conductor’s “Trailblazers” webinar about several trends in the space.
A few years ago, an advisor had to have $1 billion or more in assets under management to be acquired, but larger firms are now welcoming advisors who manage $150 million or $200 million, he said.
This M&A activity also comes at a time when the average age of an advisor is around 50. Their clients may also be in their 50s, so an acquiring firm sees an opportunity to continue to serve those clients after the advisor retires.
Often, advisors who take this route agree to become W-2 employees of the acquiring firm, Roth explained.
“You’re likely to be a person who’s saying, ‘Well, I’ll join you. Maybe I’ll become a W-2 person for four or five years, take really good care of my clients, retire here, and I’ll get paid in the process,’” Roth said, suggesting this can be an opportunity for the mid-sized quality advisor.
Roth sees this route as similar to physicians who become staff doctors at hospitals, knowing their patients will be cared for. The hospital is going “write me a check for a few million dollars, and when I do retire, I’ll have the peace of mind that that I had a great career. I monetized my business. My clients are happy,” he said.
For advisors, this path is an alternative to attempts to scale their business on their own. Keep in mind, Roth said, there is a learning curve for advisors who join other firms, including learning operational systems and blending into the culture of another firm when moving from being an independent to an employee.
Roth had a last piece of advice for independent advisors looking to monetize or sell their businesses. “Take a lesson from what we’ve seen in the wirehouses, that the independent firms are doing all they can to move assets onto their platform, their custody, their fee-based platform, their tools,” he said.
Many of the firms who want to buy businesses are counting on the opportunity to purchase the independent advisors’ practices with one of two goals, either to buy the business and the advisor becomes a W-2 employee, or to have the advisor sell the business completely and transfer the clients to their own advisors.
“If you look at it from a financial standpoint, they (the wirehouses) want your client to be their client,” he said.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com.
