When advisors think about growing their business and building scale, an inevitable underpinning of the strategy is either deploying a recruiting campaign to attract advisors with a book of business, or trying to develop a functional M&A plan to merge with or buy another independent advisor. There is something intriguing about this phenomenon: most independent advisors fail to realize that many of their peers want to do the exact same thing!
I have been to more practice management forums at various conferences over the years than is probably healthy, and there is a common occurrence at each. The question is posed by the speaker: "How many of you in this room are thinking about buying a firm or recruiting an advisor from another firm?" A forest of hands rises into the air. "Okay,' the speaker continues, "how many of you would consider selling your firm to another?" Perhaps one or two brave souls will raise their hands in defiance of what would seem to be the prevailing sentiment. The imbalance is always there.
Why is there such an imbalance? Is it a psychological effect? Better to be seen as a buyer than a seller? Strength lies with those who buy versus those who sell? Is selling perceived as a sign of weakness?
My hypothesis is as follows. Advisors are less willing to evaluate their strategic plan for an inorganic growth strategy from a systematic and quantitative perspective, but instead let their emotions, their perceptions, take over. Many advisors feel they can translate their success in growing their private wealth or institutional business organically to the realm of M&A.
The reality, however, is that recruiting and M&A are completely different animals that require constant care, nurturing and planning to achieve a successful outcome. And I have news for you: the probability of success is extremely low.
I have had the privilege of working with six of the best RIAs in the United States, via a group called The Alliance for RIAs (aRIA), for some time now. It is a study group that meets regularly to share best practices around inorganic growth. The vast majority of our time is spent reviewing real-life scenarios in a case-study format, where we address situations head on and seek to provide each other with ideas to help achieve greater levels of success. Similarly to how there are multiple ways to solve an abstract challenge, each member has found success with inorganic growth despite each firm's very different approaches to addressing the opportunities for such growth.
In the spirit of aRIA, I would like to offer a few 'guiding tenets' for developing an inorganic growth strategy to those independent advisors seeking to find material success. Any independent firm; whether it be a consolidator, RIA, super OSJ, or service bureau platform, must address these key issues.
The key for advisors is having your game plan in place before you deploy your strategy. It is not enough to figure it out on the fly, as the market has quite simply become too crowded.
This is validated from my perspective as recruiters and investment bankers in this space are being more selective on taking on 'buy side' clients. I have personally referred advisors to recruiting firms to only hear the sad feedback that the recruiter won't help. Instead, here are the strategies that multi-billion dollar RIAs deploy to their great benefit when pursuing such an approach.
Key Elements of an Inorganic Growth Strategy
