The Best Successor Is Right There, If You Know How to Look

Equity is a form of currency and, in today’s mergers and acquisitions environment, is a valuable one. We’ve seen great matches occur where the senior, larger RIA acquires (really merges) with a junior, smaller RIA, but are you truly ready to share equity? 

Key Tools for Lasting Success

Advisors with a long runway will be intrigued if you can get them more at-bats with good client prospects. But is there actually any “there, there?”

The successful aggregators have proven capabilities in generating leads through significant investments in digital marketing, public relations and access to the custodial referral programs (where the price of participating keeps going up). Can you legitimately claim you have a proven, repeatable, scalable lead flow capability? 

Often, negotiations break down over passive/index versus active, custom portfolios vs. model portfolios, alternative investments, insurance, holding securities licenses, and so forth.

No one should tell you how to run your business and engage with clients; what you do and how you do it has made you successful. But unless you have a lot of investment options under your roof, only a subset of the target market will fit your model.

To be fair, RIAs sometimes do find that “bag of cash.” We did business with with a firm that figured it out, but that was in a different place and time. Occasionally, you do see a firm that hires/acquires an advisor with a book, usually a friend of the firm, but this is serendipitous, opportunistic, and not an achievable or repeatable strategy.

Successfully securing next-gen talent lies not in unicorn chases but in a dual approach: fostering internal talent ripe for growth and strategic external recruitment.

Consider recruiting a promising next-gen advisor who may not have a big book of clients yet but has the potential to grow with your firm. It’s about nurturing their skills and aligning them with your firm’s culture, investment strategies and vision for the future.

If your firm is already bustling with clients and you’re struggling to keep up, consider bringing in a new protégé and hand over part of your client portfolio. This approach works well whether you need a savvy financial planner or a detail-oriented portfolio specialist.

To start the search process, find a firm that helps you tailor the job specifications, candidate profile and compensation package to fit your needs. An added bonus is if that firm uses behavioral profiling to make sure the fit is just right, reducing the risks involved in hiring.

Remember, it’s not about finding a mythical perfect advisor; it’s about finding someone who’s eager to be part of your team and can contribute significantly to your business. With a strategic talent acquisition strategy and the willingness to invest in the right people, you’ll find a suitable match. And maybe construct that mythical bag of cash!  

Here are five examples from our M&A advisor, Gladstone Associates, and our executive search unit, DAK Associates, in RIA growth and succession that illustrate the many possibilities of succession planning: 

Midwest RIA success: Faced with the challenge of replacing two exiting advisors and a retiring founder, a mid-sized RIA in a small Midwestern town sought our help. Rather than buying an advisor with an existing client book, we recruited a national firm’s W-2 advisor looking for growth opportunities in a boutique setting. Fast forward, and this advisor is now successfully running the firm.
Strategic recruitment for growth: An RIA with $700 million in assets, known for its unique investment strategies, needed a successor for its retiring founders. Initially aiming to acquire an established advisor, they shifted gears. With our help, they brought in a promising CFP from a larger firm, aligning perfectly with their culture and growth plans. Remember, it’s not about finding a mythical perfect advisor; it’s about finding someone who’s eager to be part of your team and can contribute significantly to your business. 
Nurturing future rainmakers: An expanding ultra-high-net-worth RIA developed a program to groom next-gen talent with “rainmaking” potential. Our role? To find individuals with the right mix of skills and personality. The result? Three promising advisors were brought on board, poised to add significant value and potential to the firm.
A match made for growth: An ambitious $600 million RIA wanted to expand. We facilitated a match fueled by an equity swap with a $200 million advisor, leading to a powerful partnership. This strategic union propelled the firm’s growth, crossing the $1 billion mark and leading to a successful acquisition by a national player.
Smart succession planning: An RIA specializing in pre-retiree financial advice faced a particular challenge: replacing retiring advisors with fresh talent. The solution? Identifying younger advisors eager to take over existing books. This strategy led to significant growth, increasing the firm’s assets to $1.8 billion and a successful sale.

 There are two more points worth exploring further, when the time’s right. 

One is buying the book of an aging “sunsetting” advisor. A bit tricky and client diligence is key, but there are a lot of these practices.

Two, if you have been unsuccessful in trying, maybe unwilling or not interested in figuring out how to find that next-gen bag of cash through recruiting or acquiring, you can always sell! 

Dan Kreuter is the founder and CEO of Gladstone Group, a national firm specializing in M&A advisory, strategic growth consulting, valuation and executive search.

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