There are many reasons why an advisory firm may consider selling to a larger entity. Whether the principals want to jumpstart growth without sacrificing client service or are simply feeling overwhelmed by the business management and operational aspects of running the practice, seeking outside assistance in the form of an acquirer can help to solve those problems and more.
Selling an advisory practice isn’t just a business decision. For advisors who have spent their lives building their businesses from the ground up, selling is an important life event that can spark a range of complicated emotions.
To better understand this process from the advisor’s perspective, HighTower recently partnered with market research firm Optima Group, Inc. to conduct an analysis on this issue. In one-on-one interviews with RIA business owners, 70 percent of advisors who are considering a sale revealed they are anxious or worried about the process.
Here’s what we learned:
Why are advisors looking to sell?
Currently, high valuations are encouraging advisors to transact before a potential market downturn. While selling sooner rather than later may lead to a more positive outcome, many advisor-owners find it difficult to consider joining forces with another firm, regardless of the potential advantages.
Some advisors say they periodically “take the call” from well-known aggregators, while others consider selling as “a last resort.” Those who entertain offers say “the most important reason would be to improve the client experience.”
For advisors who are open to selling, 50 percent say their primary motivation is capitalizing firm ownership. Forty-one percent said they thought it would help them streamline succession planning, 27 percent wanted access to capital for growth initiatives and 27 percent hoped to gain a better technology platform.
Cultural alignment, client service and brand are key priorities.
Advisors understand that different acquirers have different models and ways of running their businesses. The study found that 100 percent of respondents viewed culture and values as a top priority: “If an aggregator does not represent our core values, it would be a deal breaker,” said one survey participant.
Several respondents said they would only consider a partner that could support an elevated, high-touch client experience, and although study participants expressed concern about how clients would react to a sale, they also said clear communication can help clients view the change as positive.
As entrepreneurs, advisor-owners value decision-making control and want to ensure their client relationships will continue to come first. Despite the benefits of a large brand name, many practice leaders prefer to retain their brand identity.
What are advisors’ biggest concerns?
One advisor said partnering with an aggregator is like getting married, and expressed concerns about potential surprises, because “many marriages end in divorce.” As with any milestone life event – be it getting married, having children or deciding when to retire – it is important for advisors to work through their goals and fears about the process before going forward with a decision.
According to the study, advisors’ primary fear about partnering with a larger firm is losing operational control, with 64 percent of respondents listing that as a key concern. Forty-five percent of advisors said they were worried about their firm’s valuation falling, another 45 percent feared losing their brand identity and 36 percent were afraid of becoming an employee. Additionally, 36 percent reported anxiety about how clients would react to a sale, and 32 percent were troubled at the prospect of having to change their investment approach.
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