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Every registered investment advisor’s (RIA) mergers and acquisitions (M&A) deal is unique. If it weren’t, the industry’s record-breaking pace would likely be much higher. Since the process isn’t a cookie-cutter set of steps, firms need to evaluate each deal based on strategic categories while also factoring in its unique position.
M&A is more like a math equation. Your firm plus the desired one should equal what you would like to see occur. Perhaps that’s greater coverage throughout the United States. Or it could be adding a niche clientele that you’ve been struggling to capture on your own. There are many other desired outcomes of these deals. For that reason, evaluating each deal with the exact same metrics is preposterous and unhelpful.
How & What Data to Review
While there are standardized categories of data that each firm should review, placing the same emphasis on each doesn’t acknowledge your firm’s unique position and needs.
Below are the kinds of data to consider:
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Metrics that show growth and scale, such as assets under management (AUM), compound annual growth rate (CAGR), representative headcount growth, average AUM per advisor, and average AUM per client. These data points show a firm’s efficiency and compounding value.
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Client profile data, including the institutional versus retail mix as well as the percentage of high net worth versus ultra high net worth. This information shows whether the firm will fit the client and revenue mix that you’re hoping to achieve.
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Advisor demographics such as average age, average tenure, and succession indicators to show if there are any wobbling advisors or if there’s a loyal bench to pull from.
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Firm characteristics including location, ownership model, and the percentage that’s employee- and/or private-equity-owned. These data points could help you determine if the firm is a cultural fit — as differently aligned ownership models can lead to internal squabbles — and if there are regional opportunities to pursue.
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Tech stack and platform information such as custodial and turnkey asset management platform (TAMP) relationships, which show scalability potential and any operational issues.
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Strategic fit signals, including philanthropic focus, advisor backgrounds, and niche segments, which may uncover potential mismatches.
No Firm’s Result Will Be the Same
Even if you had two identical firms in terms of advisor headcount and geographic location, their objectives and clients are likely different. Therefore, no two firms will ever have the exact same end goal in mind. Going even further, the same firm making an acquisition a year or so apart might have changed its strategy or services enough that its objective isn’t exactly the same. As a result, the firm that it’s inserting into the equation has to be different every single time.
For that reason, we advocate that firms take all this data into account but decide what weight they want to place on each piece of it. Doing this should result in a much smoother acquisition process that helps the firm better avoid c downstream negative ripples.
Michael Magnan is the founder of AdvizorPro, a leading wealth management and financial advisor intelligence platform for smarter prospecting.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
