For instance , the multiples on these deals can be eye-catching , but the story is missing a bottom-line reality : When you see that an RIA has sold for , say , 13 times earnings , in reality the seller did not get that amount in cash up front . Most deals include contingent and deferred payments , so no one really knows exactly what the seller got .
Keep in mind , I ’ m not an expert in deal structures . I ’ m just a financial planner and part owner of a firm that has received
Planners should think more deeply before doing a deal so it ’ s less likely there will be unhappy employees ( and clients ) afterward . Too many of those stories can do damage to the profession .
offers . But I do think more planners should think more deeply before doing a deal so it ’ s less likely there will be unhappy employees ( and clients ) afterward . Too many of those stories can do damage to the profession .
Most acquisitions are paid for with four things : cash , retention payments , growth payments and stock in the buyer . The proportions of these four elements vary substantially from deal to deal .
The cash payment is straightforward . It is paid up front at closing .
Retention payments are typically paid after one to three years — a very reasonable contingency , since a buyer wants to lessen the risk that the revenue they are buying goes away .
These incentives are catnip to a seller — it seems like easy money , and they probably aren ’ t worried about the effect on clients if they know the clients love them . But those clients ’ experience with their firms will change , and some people won ’ t like what happens .
If you ’ re considering a deal , ask yourself what your clients are getting from it . Will they get more value from what the buyer provides in investment expertise and technology ? Will client portfolios need to migrate into the new firm ’ s custodian or investment models ? What will that look like ? How will the investing style change ? What will the tax ramifications and transfer issues be ? Will clients go on a new fee schedule ? Will it be higher or lower ?
After a deal goes through , you and your clients will be dealing with new people . Some buyers guarantee there won ’ t be staff changes for a spell , but if your firm has several employees , chances are the acquirer already has a centralized staff and
that will make one or more of your people redundant . Whether or not it ’ s your employee ’ s choice to leave , the staffing changes can concern clients .
The retention payments , meanwhile , place a burden on you to sell your clients on the new owner ’ s people and ways . You need to be comfortable so you can do that ethically .
Any changes to your organization could also start a vicious cycle : If you are trying to hit growth targets over time in ways that worry clients , that can affect retention and thus your ability to receive payments based on those growth targets . And concerned clients , meanwhile , are not likely to refer new business . So you must be very clear about how your growth is measured . For instance , are you measuring it only in revenue from new households ? Or does it also hinge on a client who could depart or a market that could drop , both of which could work against the targets you agreed on with the buyer ?
And then you must ask where new clients will come from . Many acquirers tout “ organic growth engines ,” but what does that mean exactly ? Are you expected to work the phones to compete with other firms on the same leads from a referral program ? Many of the firms that were selling were doing so , in fact , because they had a problem bringing in clients organically in the first place .
The Buyer ’ s Stock
You also have to ask yourself some questions if you ’ re taking the buyer ’ s stock as part of your payout . You are likely trading your own privately held stock for the buyer ’ s private shares . What class of stock are you getting and what rights do they carry with them ? What is the dividend or distribution rate on that ? Is the buyer buying your firm at 13 times earnings with stock that they value at , say , 25 times earnings ? Is that reasonable ? When and how can you sell the buyer ’ s stock ? Here ’ s something to consider : If you got cash instead , would you buy this stock at that price ? It ’ s not a perfect way to look at it , but it ’ s worth some thought .
There are several sophisticated , wellfunded buyers in the market today . None of them want their deals to go bad . The total of the cash and the present value of the contingent payments and the liquidation value of their stock can indeed add up to 13 times earnings — or less . Or more . There is both risk and potential .
Culture Is Capital
We have declined past overtures from acquirers attracted to our firm because we were looking at having to change our daily work experience . It took effort to build our culture , and we want to preserve it , not adapt to that of a new firm .
Yes , we also want to retain clients and to grow — and for our equity to grow in value . But the deal structures these suitors offered would have made much of our current work extraneous . We like leading our firm , solving the many puzzles that arise in running a business , and developing our successors and team . We love our staff . We didn ’ t want to see any of them let go . We also have some up-and-coming future owners who would essentially have to start over on their path to ownership if they were working in a new business .
Moreover , we believe at our firm that financial planning is a true profession . We long ago left behind the idea that
18 | FINANCIAL ADVISOR MAGAZINE | MARCH 2025 WWW . FA-MAG . COM