I don't need to tell you that mergers and acquisitions have played a big part in the RIA business over the past few years. The numbers certainly don't lie: Schwab Advisor Services reported 109 M&A deals involving RIAs for 2010 in its annual report, and though down in 2011, there were still 57 RIA-related M&A deals, accounting for nearly $44 billion. Read more about trends in the article on Advisor One.
When Richard Stone and I merged our two firms and created Private Ocean in 2009, we both had the same goal: serving our clients with the personal service you get from a smaller firm, but with the power and discipline of a larger firm. Combining resources also meant I didn't need to hire a separate Chief Investment Officer, Chief Operation Officer or someone to lead compliance efforts, and merging with Salient Wealth Management helped preserve my long-term vision for growth and business continuity.
Now that might sound like a happy ending, but let me tell you, going from seven to 25 people in an office with two sizable groups of diverse clients overnight isn't a walk in the park. Change never comes without some resistance, no matter how beneficial the outcome may seem, and that's why I can't stress enough how critical it is to do your due diligence when you're considering a merger or acquisition.
I'm not talking number-crunching or matching up lines on paper; believe it or not, that's the easy part. I'm talking about blending cultures, philosophies, goals and all that other intangible stuff that probably got you started in this business in the first place.
One of the questions I get asked the most is "How did you know that merging was the right choice for you?" I find that I always seem to answer with a handful of questions, which in retrospect served to help me make a decision that best suited my firm.
So I recommend that before considering a merger, ask yourself these five questions:
1) Why are you doing this?
Is this a short-term or long-term solution and does your end goal match up with what the other firm hopes to achieve? What problems do you see arising and what issues are you willing to address in order to succeed?
If you are the sole owner of your firm, consider how you'd feel about suddenly sharing ownership of the firm or even becoming a minority owner. How would sharing or conceding control of decision making affect you?
2) How rooted are you to your philosophical beliefs?
