How Can I Best Prepare to Sell My RIA?

Richard ChenAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Whether it’s to prepare for retirement, take advantage of opportunities to grow a practice, provide continuity for clients and/or firm employees, offload certain compliance or operational responsibilities, preserve a legacy, or other goals, there are compelling reasons why advisors opt to sell their practice. That can be through a merger or asset sale, particularly in today’s seller’s market where terms are often quite favorable for advisors. Yet, it’s vital for advisors to prepare thoughtfully to put themselves in the best position to achieve their goals with respect to the sale of their RIA firm. In this article, I highlight six important ways in which advisors can best prepare to sell their RIA to an external third party. For an article discussing how RIAs can opt instead to succession plan by selling the firm internally to employees, please click here.

Have a clear understanding of the goals advisors are looking to achieve through the sale of their RIA. Without such clarity, advisors will not be able to identify which acquirors will represent the best option for buying the RIA. For instance, if the advisor’s goal is to sell the practice in order to join another team to expand the availability of services and personnel that can support the RIA’s clients or the business itself, the advisor should clearly understand how they wish to grow the practice in order to determine which firm offers the best products and services suited to help the selling advisor grow the practice.

Ensure that any issues that could raise a concern for buyers to be properly addressed before exploring potential suitors. In the process of selling an RIA, buyers typically conduct extensive due diligence to uncover potential risks associated with acquiring an RIA. This will include a deep review of the corporate history, financial statements, operations, and regulatory and compliance history of the RIA being sold. Selling advisors should ensure that they have cleaned up the balance sheet of the firm, developed and maintained proper financial and legal records, and addressed any uncorrected legal or regulatory violations that could raise a concern for an acquiror. Even if the acquiror does not discover a problem with the selling advisor’s business during due diligence, typically the selling advisor will be required to make extensive representations and warranties to the buyer in the purchase agreement affirming that the RIA being sold does not create any material risks for the acquiring firm. Therefore, in advance of exploring a sale, selling advisors should clean up any problem areas, and, if they cannot be cleaned up, be prepared to proactively address such issues with the acquiror.