As an advisor, you recognize the pivotal moment to sell and must choose a successor. Often, the choice leans toward a vibrant, rising advisor whose existing book roster promises continuity and financial advantage, effectively covering costs and enhancing your firm's value.
After all, this is not just about selling: It's also about your legacy and ensuring the future of your business.
Given all that, it sounds like a great strategy. However, if you're not strongly positioned to make this happen, it's akin to asking your investment banker or headhunter to find you a "bag full of cash."
If the desired successor advisors are a W-2 employee in a bank, brokerage firm or competing RIA, oftentimes they are bound by some sort of non-compete — and regardless, they don't typically "own" their clients — and are almost always legally and technically owned by the former firm.
The advisor may leave, but there's no guarantee that clients will follow — although a legal battle might.
Why would a successful advisor join a particular firm? What do acquiring firms have to offer that's so valuable?
Key Questions to Ask
Before traveling down that route, consider attracting an already independent, self-employed, (read: smaller) advisor with a book they actually own, a client following and an existing practice. Yes, they do sell or merge with larger RIAs on occasion.
But you should ask yourself, "Why should they join my firm? Would I join my own firm if I were in their position?"
Acquiring advisory firms claiming excellent tech and support isn't enough. When was the last time you heard someone win a new business saying that their tech crashes and that their personnel are lazy?
Acquiring firms can highlight their technology and support staff to prospects while they're in the process of wooing them, but it is delusional to believe that's the main event. And any advisor joining your firm won't really know how good your technology or support staff is until they are under your tent.
Seal the Deal
Instead, focus on offering transition incentives, competitive payouts, equity, client prospects, lead flow, marketing, and access to your investment strategy and other services if you have them.
If you're recruiting or acquiring the "advisor with a book," whether they're a 1099 or W-2 employee, you will need to provide a check.
As an acquirer, you are competing against extremely well-capitalized firms, some of which will have a national presence or brand with readily deployable capital on their balance sheets or major private equity backing. I know you might be "better," more ethical, more objective. But money talks.
Payouts are sticky wickets. As an acquiring firm, you can do better than most W-2 types coming from a grid formula, and while there are independent 1099 advisors who are getting under-incentivized and your formula could be better, the advisors who own their practice are on the top line working with close to 100 pennies on the dollar.
We know it's "what you take, not what you make," but you're typically not going to win the payout battle with these independents.
