The 6 Stages of Growing through Acquisitions
DEAR ADVISORS,
Succession planning in the advisory industry is a seller’s market right now. The huge quantity of buyers makes it easy to discount an individual buyer’s value. Many young advisors with established books of business would love to acquire an advisory firm but have been burned by sellers who don’t value open communication and mutual respect. These traits must exist for an succession plan to succeed. Here are the 6 stages to growing a firm through acquisitions that mutually benefit all parties. These are the action items to take once the Buy / Sell Agreement has been signed.
Stage 1 – Buy / Sell Insurance
When I bought my car, I sat in the lot at the car dealer and purchased car insurance over the phone before driving home. Today, I take the same approach to getting life insurance on each partner when buying an advisory firm. This should be part of closing the deal.
The most common types of insurance are Entity Purchase, Cross Purchase, and Unilateral (a blend of those two). Bringing in an insurance expert can find the best fit of policies at a not-as-painful price. Each party has unique needs and circumstances and funding life insurance can get expensive!
Stage 2 - Update Compliance
Maintaining compliance is a top priority and doesn’t take long. It can be helpful to update all the firm’s legal documents at the same time, including the ADV and Operating Agreement, to incorporate the relevant partners in their respective roles and make sure any Client Agreements are signed with the required disclosures and disclaimers. Once the updated ADV is live, anyone can view it. For that reason, Stages 2 and 3 should almost be done simultaneously.
Stage 3 - Notify Clients
One of the most common objections to starting a succession plan is that the seller doesn’t want anyone to know they’re leaving. The truth is that if you’re thinking about it, everyone else is as well! Open communication with clients is the best way to keep a high client retention rate throughout an ownership transition.
Early in my career, I worked on a team with an older advisor who had a health event one weekend and never came back to the office. Within the first week we mailed personalized letters to each of his clients so they would know what happened and that we were there to help. Within a month, we had met with every client and after the first year, had a client retention rate of over 95%. Whether the transition is fast or slow, I love these solutions and fostering open communication when possible.
Stage 4 – Update Website and Marketing
Once existing clients know, it’s time to tell prospective clients as well. Updating the website and marketing message is a great way to build trust with prospective clients because they know there’s a plan in place. They want to know that someone will be there to help them when they’re ready to retire. Writing a press release is another way to use the momentum in the transition to increase your new client close ratio and generate excitement about the changes in your firm.
Stage 5 – Merge Technology and Systems
It takes putting several heads together to identify how each firm operates, and how they should be working together. That’s the best place to start before deciding what technology and systems to keep, replace, or upgrade. These conversations can be time-consuming and lead everyone in circles. It’s effective to leverage an office manager or consultant to grow through this change while still serving existing clients well.
When two firms merge, there’s usually some savings in combining technology and operations. However, it’s also dangerous to implement changes and make purchases before seeing the savings hit the bank account. There are many unexpected costs in merging teams and software. Consult with all partners and consider all outcomes before making a decision that costs money, time, and, potentially, even valuable team members.
Stage 6 – Paperwork
Most custodians don’t require clients to sign new paperwork if the buyer and seller use the same custodian. However, new paperwork is usually required when the buyer or seller is changing custodians. Each custodian has their own processes and procedures, but they also usually have their own team to help with specific questions like this. Locate that team and foster open communication with them to get this done quickly and efficiently so your office can get back to business as usual.
These steps are best once the Buy/Sell Agreement has been signed. If you haven’t done that yet, you’ll want to check out last week’s post with the 7 Steps to a Merger or Partnership. Once the Buy/Sell Agreement as been signed, and all the partners get used to working together, it’s a good habit to check in on how your each partner is feeling about the partnership. This is a healthy activity to do at least every year, if not more often. Both the business and the partners grow and change. The goal is for each partner to be happy, fairly compensated, and have a good work-life balance throughout the entire transition. Following these steps will help you secure the future of your family and your advisory firm!
Warm regards,
Brooklyn
P.S.
At Ellevate Advisors, we believe that advisors deserve to retire too. What does that look like for you, your family, and your business? Let’s figure it out together! Click here to schedule an initial phone call or get to know me on my bio here!