When it comes to growing a financial advisory firm, growth strategies usually land into two camps: organic and inorganic growth. Organic growth generally involves client prospecting and business development efforts while inorganic growth focuses on mergers and acquisitions.
The financial advisor industry is rapidly growing. In tandem with that growth is a largely aging advisor force who must now look to next generation leaders to help carry the practice into the future. For many, an internal succession plan must rely on third-party financing so that junior advisors can bring the necessary capital to the table.
As the financial advisor industry faces a leadership cliff and talent shortage, there has become a greater need for advisors to actively recruit and retain Nextgen talent, not only to support the ongoing growth of the firm, but to create a bench of qualified successors.
In some cases, a founding advisor has actively recruited a junior advisor for the purpose of cultivating a successor. Even still, they may not feel that an advisor is ready to graduate to the level of partner, or they may have concerns about the risks involved with taking on a partner.
Internal successions have become more popular in recent years. They provide the Founders and Senior Partners with many advantages, including a smoother transition into retirement and the chance to groom their successors in a way that preserves their legacy.
Large mergers and acquisitions dominate the industry news, leading many to believe that the bulk of transactions occur only at the top level. It also leads many to conclude that a mass consolidation is taking place and could be nearing its peak.
Reports are constantly released providing updates about the state of M&A activity in the financial advisory industry. As impressive as this data may seem, it is far from a comprehensive and accurate view of the total number and types of deals occurring each year.
A practice acquisition can be both an exciting and daunting experience for the first-time buyer. As with any major transaction, it’s important to do your homework and to take the time to learn the process, potential challenges, and what you need to have in place to make a successful transition.
Acquisitions are an excellent way to scale your financial practice and achieve rapid growth. As with any purchase, there is always the danger that something will go wrong. It’s good to hope for the best, but smart advisors know to also build certain protections into the deal in order to preserve their investment.