The approaches of the different types of buyers vary, so it’s essential to know how they approach the process.
When it comes to selling all or part of your firm, while price and deal structure are certainly important, they’re not the only things that determine the best fit. Other considerations for advisers looking to sell, including retirement, succession planning, lifestyle, career paths for employees and how the acquiring firm will manage clients, are just as important.
There are three broad categories of buyers in the marketplace right now, and, while most of these are consolidators pursuing a roll-up strategy, none of them are likely to come right out and call themselves that.
First, there are the financial aggregators. These folks typically buy a portion of a firm’s earnings, say 50%, and rely upon the founders to continue to run their practice. This structure enables owners to diversify a large chunk of their holdings (their firm) while still maintaining some autonomy and control. Typically, the selling adviser retains the management and oversight of their business while participating in some of the services the acquiring firm has to offer. The name and brand of the selling firm typically remain in place.
Second, there are what I call the branded aggregators. These entities acquire 100% of an adviser’s practice — sometimes with all cash and sometimes using a combination of cash and stock — and take over a large portion of the adviser’s back office. The parent firm will provide much of the technology, investment management and oversight, but quite often the selling adviser will still be responsible for running the office, including the management of employees. Typically, the selling firm will take on the name of the parent firm.
Third is the category of integrators. These organizations are looking for advisers who want to shed as many of their daily responsibilities as possible. (My firm, Allworth, falls into this category.) With an integrator, the parent firm will partner with a selling adviser and compensate the adviser with cash and equity. The founding adviser will become a partner with others in the parent company. In this structure, the merged firm takes on the identity of the partner firm in virtually every aspect, including branding, marketing, technology and management. The main benefits of this type of structure include flexibility for the selling adviser and improved career paths for their employees.
One other option for advisers looking to sell is to put together a plan for the existing employees to purchase the business. This could potentially work for smaller organizations but it is challenging as firms get larger. While I’ve seen it be effective in certain circumstances, it can be difficult for an adviser to get fair market value for their firm when selling internally.
This entire advisory sector is in the early stages of a massive consolidation that is providing ample opportunities for principals looking for a different path forward or a succession strategy. The better educated you are about your options, the better decisions you’ll make for yourself, your employees, and your clients.
As our second lead editor, Cindy Hamilton covers health, fitness and other wellness topics. She is also instrumental in making sure the content on the site is clear and accurate for our readers. Cindy received a BA and an MA from NYU.