Bootstrapping to become a giant.

Exploiting the benefits of Mergers & Acquisitions to grow your Financial Advisory Practice.


The top Advisors in the business often have an edge because they are shrewd entrepreneur over and above being great Wealth Managers.  Growing AUM is not a simple task, notwithstanding this, there’s a handful of Super Advisors that have managed to create books of businesses in the $Billions. All while the vast majority of Advisors have AUM below $50 million and even much lower at some of the independent platforms.  Among the many techniques used to build huge books of AUM, Mergers and Acquisitions must be considered as the most potent.


Buying a book of business or merging yours with another Advisor is not an easy task. That said, many of the Super Advisors have perfected the art of consolidating AUM.  The times are changing in the Wealth Management industry, and now more than ever its become crucial to have an edge.  There are many elements to the M&A game, and the opportunities to acquire AUM seems seldom for most Advisors, this really is where the Super Advisors have an evident advantage.


According to a Forbes article (available here) the average age of a financial advisor in the US is 51 and it is estimated that 38% are expected to retire within 10 years. While in Canada the average age of Advisors is 53.8, according to Investment Executive (available here).  This coupled with the fact that the bigger firms continue to put pressure on Advisors Revenue Grid, is presenting some rather attractive options for the Advisors who understand the M&A game.


First start at M, then the A

Let’s talk about partnerships and Mergers first, there’s an evident trend of new partnerships over the last few years. This has been driven by Advisors with smaller books taking cover under an Advisor with a larger AUM. Here’s an example, say Advisor A has a $50 million AUM and generating about $500,000 gross revenue, while Advisor B has $25 million AUM. Advisor B is at the bottom of the grid and under a lot of pressure, while Advisor A is in the middle of the grid, they’re earning a decent percentage of the gross revenue but is still leaving revenue on the table, to benefit from the grid structure they must increase revenue.  Here, Advisor A & B may come to an agreement that they would partner to benefit from a higher grid payout because combining their revenues put them around $750,000 of annual gross revenue, which puts the partnership at much better payout level on the grid. Often the challenge with this arrangement is that the firm does not like it and they would have to put a really strong case for getting together, the firm will also have higher expectations of their combined efforts.  One common pitfall is that now the Advisor’s hands are somewhat tied when it comes to either of the partners doing a future acquisition of AUM.  That said, this is a perfectly good option that should be considered to maximize your take home income.  


These types of partnerships work well as a preemptive strategic move to acquire assets and is sometimes used in this manner. So same scenario with the Advisors A & B , but lets say Advisor A is looking to retire in a few years, doing a merger like this benefits them in a multiple ways. It creates a great succession option to allow Advisor B to eventually acquire his asset, while he benefits from a higher payout through his remaining working years.  This is an ideal situation for Advisor B as well, because at time of acquisition there is a guaranteed higher retention rate and maybe be able to negotiate a better price. There are other reasons for partnerships like having satellite AUM in different jurisdictions, or sharing of marketing resources etc., we will cover this in another blog.


AUM Acquisition is a Potent Formula for Explosive Growth

The challenge in participating in M&A’s is that you need currency, an ability to finance the acquisition. For this reason, the greater your AUM the more options you have available to you, and some smart advisors are positioning themselves to growth into giants over the next few year by acquiring assets. Finding a book to purchase can certainly be tricky, this is where your networking skills is most valuable. For advisors on the bigger platforms, this option can no longer be ignored, if you are not acquiring asset, you will be left behind. Presently there are a handful of advisors that are really aggressively gunning to get to the $Billion AUM level and it is obvious that acquiring assets would be the only way to get them there.


In a recent conversation an advisor with a $300 million AUM, outlined his intent to acquire at least 3-5 books of businesses over the next 5 years to get him in the $Billion AUM ranking. This may seem over ambitious, but this advisor, has gone from $50 million to $300 million in AUM in just 3 years, by applying a similar approach. The approach has been to built a team, to have control incoming relations, spend an enormous amount of time to get an understanding of the lay of the land, finally identify clients & AUM that is not a good fit for the practice and divest it to other smaller advisors interested in growing.


As some Advisors approach retirement age they may seek to monetize their AUM to create a nest egg for retirement. Although they may not advertise, every advisor within five years of retirement is considering how to create and exit plan that would be beneficial to them.  The lesson here is to start purchasing AUM, even smaller tranches to scale, while creating relationships that will enable acquisitions of much larger scope within a few years.  


Remember if you are not growing then you’re dying.

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