The Acquirer’s Big-Picture Checklist

Acquiring a financial advisory practice requires taking a long, hard look at the firm you may be buying. Perhaps more importantly, you should start by looking in the mirror.

The ultimate success of mergers-and-acquisition-based growth — especially at the financial advisor firm level — requires an honest assessment of readiness, a precise alignment of interests across all parties and prioritizing your team’s ability to deliver the same level of service to clients.

Due diligence should not just be a careful review of the potential purchase. Instead, as a savvy buyer, you should use this process to ascertain if this path will lead you to your desired destination. Yes, inorganic growth presents incredible opportunities — enhancing valuations and providing access to additional talent as well as potential new services. 

However, to paraphrase a parable often employed to keep you from following the crowd, just because everyone else is acquiring financial advisory practices doesn’t mean you should, too. 

That said, and if this is a strategy that your team decides to employ, it’s critical to ensure that you aren’t left behind when considering growth opportunities. Having complete information is the most important aspect of firm acquisitions.

First Things First

Answering several straightforward questions, often with complex answers, is a good first step.

1. Is this deal financially beneficial? If you can’t answer this in one word, the other embedded costs may outweigh the benefits from a valuation perspective. The deal terms you negotiate may seem advantageous, but you must understand the complete costs and benefits to your top and bottom line.
2. Is it strategically beneficial? This is a bit more complicated, as you’ll need to explore the long-term potential of aligning this practice with your overall growth goals.
3. Is it feasible? Even if the answers to questions one and two are a resounding yes, if you do not have readily deployable capital or can’t secure funding for the deal with terms that make good sense, the rest of this process is an exercise in futility.

Culture and Fit

Next, you must answer why this acquisition makes the most sense for the clients, as well as for you and your clients. Unfortunately, there aren’t many straightforward answers to these qualitative questions.

1. Do the firms share values? “Culture” and “values” are tossed around somewhat recklessly — often used to describe solutions and value rather than their true meaning. However, understanding what drives an advisor to do this work is critical in this case. You aren’t buying a toaster; you are establishing a long-term relationship with another professional and likely a group of clients who share the same values.
2. Do your tactical approaches align? While this can change through the acquisition process, being on the same page regarding how you achieve future growth makes for a more successful partnership.
3. Do your processes align? Perhaps more tactical than the others, similar processes regarding client services, compliance, talent management, marketing and even document management provide an important window into a firm’s culture.

Details Matter

While an honest understanding of your stance and the other firm’s position provides you with an incredibly strong foundation for future growth, the devil in any potential acquisition is in the details. With big-picture questions answered, you can get into the minutiae.