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Half Of RIAs Are Unhappy With Their M & A Deals
According to a survey of advisors who sold or joined their RIA firms within the past 10 years , half are dissatisfied .
By Jerry D . Prince & Russ Alan Prince
MERGER AND ACQUISITION ACtivity among RIAs is intense and looks like it will remain brisk . Demographics reveal that many advisors are getting older , and are thus interested in selling to aggregators , which are often backed by private equity firms . Those factors , as well as increased competition , continue to give the M & A trend life .
But what happens after a sale or merger ? When they look at the outcomes , how satisfied or dissatisfied are the advisors who sold or merged their firms ?
To find out , we surveyed 311 advisors who had done deals within the past 10 years . These transactions could have been executed with another firm or with larger organizations such as banks or aggregators .
About half of the advisors were satisfied with how things turned out . But that means about half weren ’ t . ( See Exhibit 1 .)
We looked at what factors contributed to somebody ’ s satisfaction while also segmenting the advisors according to their core reasons for selling or merging in the first place ( Exhibit 2 ). A little more than 30 % of the respondents said they did a deal because it gave them a way to exit the advisory business profitably . They ’ d had no successors for their practice and could not continue working indefinitely or did not want to . Meanwhile , 70 % of the advisors said they were looking for a way to significantly grow their businesses by getting support and access to services that were otherwise out of reach .
Why Satisfied ?
The reasons an advisor was satisfied or dissatisfied with a deal hinged on their motivations for doing one in the first place ( Exhibit 3 ).
When it came to those advisors seeking an industry exit , for example , the most critical factor in their satisfaction was their eventual payout , including any up-front monies , earn-outs or client retention bonuses . Less important to them were operational or compliance problems , the strategic direction of their firms after the deals were done or the cultural fits with their new firms . Satisfied exit-seekers also reported no conflict with new management or other advisors .
When an advisor was seeking growth , however , the most crucial factor in his or her satisfaction was whether the acquirer or merger partner could deliver on the promise of support and additional resources . The other factors were highly correlated with the ability of the deal partners to deliver the expected value .
Why Dissatisfied ? The most significant factor for advisors dissatisfied with their sale or merger was personal conflict with new management or
JANUARY / FEBRUARY 2024 | FINANCIAL ADVISOR MAGAZINE | 29