Four Tips for RIAs Looking to be Acquired

To take advantage of the favorable market conditions, here are four tips to ensure a deal is teed up for long-lasting success:

1. A successful business attracts buyers. Set your business up for success to get the deal you want!

The RIA business has evolved from being “investment-forward” to “planning-forward” to “experience-forward.” In a rapidly consolidating marketplace, advisory firms that offer a holistic, differentiated experience to clients will gain key competitive advantages.

Before entering a deal, assess what sets your business apart from similar firms. Are you focusing on a niche market or clientele? Are you offering something unique to make your firm the best choice for that niche target? For example, we are working with an RIA firm in Florida that focuses on wealthy clients who have a common interest: luxury travel. So, the firm hired a concierge to help their clients make those travel choices – adding that extra touch improves loyalty.

Another factor that will help increase your appeal to potential buyers is the longevity of your business. If the majority of your clients are nearing retirement and you are not investing the necessary resources to build a future pipeline, your business will not be viewed as being lucrative over the long-term.

2. Clear goals make for clear outcomes

Be precise about what you want to achieve in a deal. Are you hoping to reach a critical market with your target clientele? Are you looking to increase capacity by acquiring talent? Do you need access to broader, or new, technology options? Or, are you in need of funds or resources to continue investing in the growth of the business?

For example, if you’re trying to improve scale to meet the demand your firm has created, look at firms that are good at attracting top-talent and have excess capacity. Even if those firms have excesses going into a deal – and therefore are less profitable than your target metrics – you should factor in the synergies that will be realized through a merger.

Frequently, we see financials take front-and-center stage in transactions. And financials are clearly important attributes in any deal. But calibrating your needs at the get-go will allow you to go beyond the numbers and envision how a partnership will play out in the long run.

3. Culture counts

One of the less discussed aspects of M&A, culture, is one of the most critical factors for success in the long run.

Joining forces with a new firm may add much needed resources or bring access to new technology and infrastructure. But is it the right fit in the long run? Do you have the same or similar client approach? Do you treat employees similarly? Do you share the same values?

Assessing these intangibles can be challenging, but there are indicators that will help.

For example, compensation and the behaviors it reinforces are important indicators of culture. Similarly, policies around people development and staffing underscore how a firm approaches its human capital – its most important asset. Further, a firm’s existing decision-making process can be critical in assessing how the post-merger integration process will work out.

Spend several months observing each other’s culture and understanding synergies through a series of meetings. While this timeline may strike some as too long, it is worth the investment to ensure a fulfilling outcome.

4. Sealing the deal is only the beginning of the journey

There’s a large amount of energy and focus around deal terms, but the real work starts once the papers are signed.

The post-merger phase is when most acquisitions fail to produce the desired outcomes – and instead are riddled with partner break-ups, loss of key clients, and the termination of key vendor relationships. Be clear about what the new structure means to employees and, where appropriate, review and re-evaluate roles and incentives. With a new pool of talent to account for, ensure your resources are being used to their full potential. Reward employees to avoid turnover and put processes in place that protect and preserve the culture of the new firm.

Consolidation in the RIA industry is showing no sign of slowing down. And while M&A may not be the right path for everyone, for those who are considering it as an option, coming to the table with clear goals and a defined strategy will make all the difference.

Gabriel Garcia is head of relationship management at BNY Mellon’s Pershing Advisor Solutions.

Gabriel Garcia is a managing director for BNY Mellon's Pershing Advisor Solutions in its relationship management group. Mr. Garcia works with RIAs interested in developing and growing their practices, helping them manage business issues they face. You can follow him on LinkedIn here.

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