Should You Buy (or Sell) a Financial Advisory Practice

In some important ways, owners of financial advisory practices are just like other entrepreneurs. Many have retirement in sight, or for a host of other reasons, are positioning their businesses for a sale.

It can be imprudent to discuss these plans with clients, who often expect a trusted advisor to remain with the firm for what essentially amounts to the advisor’s entire life. Behind the scenes, though, the financial advisory industry is active with mergers and acquisitions.

Buying a Financial Advisory Business

Several years ago, Christy Aleckson, founder and CEO of Single Point Financial Advisors in Beaverton, Oregon, purchased a practice from an advisor with whom she was sharing office space. After about six months of co-locating, the advisor told Aleckson she wanted to plan her exit, and the two began discussions about Aleckson buying the business.

They developed a four- to five-year plan for the retiring advisor’s clients to be introduced to Aleckson and become comfortable with the transition.

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“Her practice was a nice match to mine. We had a similar style,” Aleckson says. “Her clients had mostly come from her social circle and her previous employer, a medical facility, where she worked for 30 years. They were loyal and trusting. It was a great fit.”

For advice on the valuation, Aleckson turned to an attorney, her broker-dealer’s succession office and FP Transitions, a Lake Oswego, Oregon, firm that specializes in financial advisory mergers and acquisitions.

Although much went well, in hindsight, Aleckson says she would have handled some aspects of the transaction itself and the transition period differently. Her practice was relatively new at the time, and the business was far from being flush with cash. As a result, Aleckson felt she was in a weak negotiating position when it came to suggesting deal terms.

“(The retiring advisor) was being very accommodating, but I should have stuck up for myself on a couple of terms that cost me significantly in taxes,” Aleckson says.

Hiring a Neutral Party

Jude Wilson, founder of Wilson Group Financial in Orlando, Florida, had researched advisory mergers and acquisitions for two years before acquiring a practice.

“It felt like the more educated I became, the more opportunities I started to see,” he says. “My first actual experience was purchasing my mentor’s practice. It was a good fit because we had a personal friendship and very similar financial planning philosophies.”

Wilson says mergers and acquisitions courses he took were helpful, but ultimately, the real-world experience proved to be quite different.

“For the most part it was pretty smooth sailing, but there were stressful times finding financing and negotiating the purchase price,” he says.

Like Aleckson, Wilson relied on FP Transitions, as his mentor already had a membership to its services. That membership included an annual valuation of the practice.

Wilson and the seller also agreed to hire a neutral third party to negotiate the transaction, which made the process less stressful than having opposing attorneys.

On the downside, Wilson was not happy with the first lender he attempted to work with.

“There was a lot of stop and start. The second lender truly understood our industry which made it a much smoother transaction,” he says.

Selling an Advisory Firm: Finding the Right Fit

Sellers travel a similar path toward closing the deal, but with a different objective.

Greg Sloan is currently managing director of the Mather Group, a Chicago-based investment management firm. In 2019, he sold his registered investment advisory firm to the Mather Group, and subsequently became an employee there.

Sloan spent several years looking for merger partners before finding the right one.

“In the aftermath of the financial crisis and the Madoff Ponzi scheme, I expected the business landscape for small RIA firms would worsen considerably in the coming years,” Sloan says. “Increased regulations plus growing technology costs for client experience and security were two significant infrastructure modifications that seemed inevitable.”

He believed it would be in the best interest of his clients, employees and his family to become part of a bigger firm that could spread the growing operational overhead over a larger number of clients.

Sloan began looking for merger partners in 2011, or firms he could acquire to help him get to a larger scale.

“After several failed attempts to merge or buy, I began to warm to the idea of being acquired by a larger firm,” he says. “From 2015 through 2018, I met with multiple firms but never found the right fit. In 2019, I agreed to work with a consulting firm to help find the right buying partner. It only took two months from the time of our engagement to do so.”

[Read: Financial Advisor Q&A: The Foundation for Financial Planning.]

Although the consulting firm helped streamline the process, Sloan recalls moments of frustration and exhaustion.

“When you are the founder of any company, it takes resolve to push through the emotional and psychological ordeal of parting with your baby,” he says.

“Talking to as many potential merger or acquisition partners during the years between 2015 and 2018, caused me to think there may not be a perfect fit for all my stakeholders. It’s easy to get discouraged and want to give up on the process,” he says.

Sloan came close to finding a firm that he considered a near-perfect fit two years ago, but the deal didn’t close for reasons outside his control, and that of the potential buyer. That failed attempt led him to realize that a great fit was out there somewhere, but his tactics needed to change.

Last year, he began working with the consulting firm. The consultant presented Sloan’s firm to the open market of potential acquirers, which brought in five strong candidates and two offers. Sloan closed the deal with the Mather Group within months.

Like advisors on the buying side, Sloan says, with the benefit of hindsight, he could have done a few things differently. For example, he encourages other potential sellers to conduct an annual review of their firm using a preliminary due diligence checklist, whether or not they are considering a transaction in the foreseeable future. He found that his own record-keeping and documentation could have been improved, which would have saved time.

He adds, “In seeking the right buying partner, I always asked two questions: Who did I want to work for until I retire, and what firm would I want to advise my wife and family in the event of my death? I am grateful to have found a firm that was the answer to both questions.”

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