Learning Experiences Advisor Firm Owners Wished They Knew Before Merging Or Selling

One of the biggest challenges for small, independent RIA firms is that they are self-reliant with respect to designing, choosing, and implementing the systems, technology, and processes that they use. Some firm owners relish the responsibilities of building and maintaining a firm from the ground up, but others – who may be happier with simply advising and building relationships with clients – might find it more appealing to merge with or sell to a larger firm that has the resources to handle the back- and middle-office support and leave the advisor to the work that they enjoy most. However, advisors who choose to merge or sell may end up regretting the decision if they find themselves tasked with new and unexpected responsibilities, mismatched with the new firm’s culture, or missing the freedom that they had enjoyed as an independent operator.

In this guest post, industry commentator and Inside Information author Bob Veres relates the stories of advisors who relinquished their independence – often for sensible reasons, such as succession planning or to solve challenges of firm growth and complexity – and what they learned about the experience that they wished they had known beforehand (that other would-be sellers may want to know before they face a similar decision).

The first major lesson about selling an advisory firm is the sheer amount of work involved in doing so, from finding (and doing due diligence on) potential buyers to migrating systems and technologies over to the new firm. For a firm owner who expects the sale to make their life simpler, the enormous project of transitioning can often be the opposite of what they expect.

Second, once the merger is complete, firm owners often discover that the culture of the new firm clashes with their expectations. Firms seeking acquisitions may talk up their values prior to the sale, but the reality is that at a firm that is rapidly acquiring other businesses – particularly when funded by private equity ownership – the focus is often on the growth of assets and profitability, no matter what the core values are purported to be. And when the acquiring firm is much larger than the selling firm, the much more rigid structure of the larger firm (particularly relating to compliance and personnel management) will almost inevitably conflict with a previously independent firm owner who is used to making their own decisions.

The third major lesson is that RIAs that acquire independent advisory firms are sometimes acquired themselves by still larger firms. Independent firm owners who have taken pains to ensure that their acquisition partner is a good fit in terms of culture, processes, and services have gone on to see their work being undone when the partner is subsequently eaten up by a bigger firm with little interest in preserving the original independent firm owner’s vision.

Ultimately, many of these issues are simply tradeoffs inherent in selling an advisory firm, which necessarily involves the owner giving up some (or all of) the control that they’re accustomed to. However, for advisors who are considering a sale – which, despite the potential pitfalls, still can be an important part of the journey for succession planning and growing the firm beyond an individual advisor or owner – the key point is that the reality of going through an acquisition often doesn’t match up with the owner’s expectations. And while it’s common for media to focus on the success stories, it can be just as helpful to hear about advisors’ experiences when their acquisitions don’t go just as planned, so future advisors can learn from the benefit of hindsight!

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