Practice Made Perfect: When and How to Undertake M&A Strategies for your Practice

Whether it’s young advisors growing their firms by acquiring another advisor’s practice, an industry veteran seeking a liquidity event in terms of a total exit from the business or maybe a firm just trying to realize a portion of the value built into a practice, mergers and acquisitions between advisory practices remain an important part of the independent advisor landscape.

If anything, in fact, M&A activity will increase in coming years, as the demographics of the industry continue to change, exemplified most dramatically by a large set of Baby Boomer advisors increasingly looking to leave their businesses and achieve a level of lifetime financial security.

As a result, many practice management experts are cautioning advisors: have an M&A organizational plan in place as soon as possible, or run the risk of leaving money on the table, perhaps a considerable amount. One such expert is Adam Antoniades, President and CEO of First Allied Securities, a San Diego, Ca.-based independent broker-dealer with approximately 1,000 advisors.

“For most advisors, the sale of their practice is the single biggest wealth creation event they are ever going to experience, and if they do not have a plan for an exit, chances are they won’t receive optimum value,” Antoniades said. “That’s the practical reality of it. Exits are a journey, and part of that journey is staying true to a plan.”

Antoniades says First Allied helps prospective buyers and sellers through the process, providing assistance with due diligence and financial analysis and, where appropriate, structuring the financing across different forms to enable seamless transactions.

Kimberly Guimond Dellarocca, Global Head of Segment Marketing and Practice Management at Pershing, echoed Antoniades on the need to have a plan, whether you are a buyer or a seller.

“A lot of firms don’t fully appreciate the importance of planning,” Dellarocca said. “Without it, you can find yourself without a deal pretty quickly.”

Pershing tries to make sure that doesn’t happen by facilitating M&A via an internal practice management program that focuses on fostering inorganic and organic growth, coordinating operational efficiency and providing risk management assessments.

Having a long-term outlook is the only way to go about M&A, said Jim Komoszewski, Regional Manager and Senior Vice President of Practice Management of Investment Centers of America, a broker-dealer with 362 advisors and over $1.5 billion AUM that is part of the National Planning Holdings network.

“It’s 100 percent guaranteed that all of us will leave this business eventually,” Komoszewski said. “Even if you are 30-years old and plan to work another 30 years, get something in place now.”

All agreed that those seeking a liquidity event would do well to pursue an internal succession plan, bringing younger advisors into the practice and grooming them over a course of a number of years to take control of the business.

“When you have a strong bench of talent, they have an appreciation of the firm’s client base and culture, and ultimately will help the seller maintain the legacy and vision of the firm moving forward,” Dellarocca said.

Liquidity events presented both opportunities and challenges for broker-dealers and customers, according to Antoniades. The key is to keep both happy, which starts with the customer.

“As a broker-dealer, obviously we do not want those assets to leave, so we do everything we can to ensure that transitions happen internally,” he said. “But you also have to think about it from the customer’s prospective – which as financial professionals, we should always be doing anyway – they don’t want to deal with a clumsy acquisition process.”

Of course, those seeking to retire are far from the only ones getting in on the flurry of M&A activity. Not to be forgotten is a rising generation of advisors that, faced with the choice of having to build something from scratch, is instead seeking to grow their businesses by acquiring established practices.

According to Dellarocca, the top three goals for advisors seeking to acquire practices are to provide more scale, get access to new markets and obtain different, complementary skill sets. Regardless of the goals, the need for a plan is no less important. Buyers, she said, need to recognize when and under what circumstances they should consider purchasing a practice, and as with any other M&A transaction, they also need to know how to maximize opportunities while minimizing potential pitfalls when the decision to buy has ultimately been made.

Ultimately, however, M&A is all about finding the right fit, according Komoszewski.

“It’s easier said than done, to be sure, but ideally firms coming together should have a shared culture and values, combined with a similar product mix, compatible management styles and a consistent investment philosophy,” he said.

While he conceded that achieving that kind of symmetry is difficult, it’s not impossible, saying that asking as many questions as possible is pivotal.

“If the three most important things in real estate are location, location, location, then the three most important things in mergers and acquisitions are ask, ask, ask,” Komoszewski said. “Sometimes we see conversations go on for weeks, even months, and then the deal falls apart in the late stages when critical information is shared. That type of scenario can be avoided if someone asked a few more questions at the beginning.”


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