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Well into the first quarter of the new year, we do not expect the challenges that have roiled the markets and economy since January of 2022 will abate anytime soon. Inflationary pressure, the Russian invasion of Ukraine and rising interest rates wrought havoc on traditional investment classes like stocks, bonds and cash over the past year. Market pundits and asset managers are split on whether we will enter a recession or if the Fed will guide us to a soft landing.
While these ongoing headwinds present challenges for growth in the year ahead, the landscape for mergers and acquisitions (M&A) and recruitment in the advisory profession will continue to be strong. Data from a December 2022 study supported that view, with 70% of respondents having explored a merger, sale or acquisition despite plunging market valuations and a slowing economy. Nearly half of respondents (44%) wound up making a deal, while 63% anticipated engaging in M&A in 2023.
As is typically the case, firms are looking to M&A as a means of accelerating growth, adding sought-after talent and introducing new capabilities. With valuations trending lower than they were in 2020 and 2021, one might expect aggressive bargain hunters to be buyers in 2023. In fact, 90% of industry executives surveyed by DeVoe & Company thought valuations would be somewhat lower in 2023 or would hold steady.
Recruiting or acquiring advisory firms can be daunting even in bull markets and it becomes more challenging during periods of volatility. Finding the right fit for your firm from a cultural perspective, determining that interests are aligned, and ensuring that the transaction or vision for the combined entity is mutually beneficial are imperative regardless of market conditions.
Not sure where to start? Here are some critical steps that an elite advisory firm should implement to ensure their recruitment or acquisition strategy is positioned for long-term success.
Assess your firm’s DNA
Conduct rigorous due diligence on the firm or advisors you’re seeking to recruit or acquire, but first, a little introspection is warranted.
Evaluate your firm’s value proposition. Reflect on what inspired your current team to join and what (outside of compensation) motivates them to show up every day. You need a firm grasp on what your culture is and isn’t before you can go about identifying which firms represent the appropriate M&A or recruitment targets.
For example, Integrated Partners’ CPA Alliance program wasn’t an afterthought. It was deliberately conceived by leadership decades ago to add value, inject additional, recurring revenue streams and to secure the top talent available. We recognized who we were as a collective and where we wanted to go, identifying our partners as the critical nucleus to growth. Promoting and engendering trust and providing an environment that supports and strengthens long-term relationships became the cornerstone of our firm. When we’re recruiting, it makes it easy to articulate our value proposition.
Determine your needs and be highly selective
Before embarking upon the recruitment process, have a clear understanding of what you are looking for in an advisor. Cogently detail the specific expertise and skill set(s) that you need and how they will complement the business you’ve already built.
Identifying the right persona should be the focus, rather than the pursuit of a “heartbeat.” Elite practices are built one advisor or group at a time and the foundations of these otherwise disparate groups should always be aligned.
When I am recruiting, the questions I ask are deliberate, targeted and incisive. Do the prospects appreciate planning? Have they been successful? If they express interest in growth, how do they want to grow? What is their firm’s DNA and do they see Integrated as a logical fit?
When you have a clear idea of who you are and where you’re going, remain steadfast and seek the people who represent the best match for your future trajectory. Don’t let the prospect of rapid growth deter you from being selective. Ensure you’re targeting the right people for the right seats on the bus.
Don’t hesitate to walk away
There are various reasons that your acquisition target might prove to be a less-than-stellar fit. It could be conflicting processes. Maybe they emphasize rapid growth and scale, whereas you prize a measured, strategic approach. Perhaps there are major compliance red flags, or you find that company leadership is seduced by the pursuit of capital and private equity money.
Some firms look to be acquired for the wrong reasons, such as a desire to build an expansive, complex tech stack, regardless of whether the integrations will play well with what the acquiring firm has in place. Maybe your prospective acquiree is perfect in every way except for the actual deal terms; the DNA, cultural alignment and high-selectivity checkboxes are all met, but the firm’s leadership has some slightly inflated expectations when it comes to valuation.
Regardless of the specific scenario, if you have done the work to understand your own firm’s culture, priorities and value proposition, you will know when to walk away and stay true to the foundational ethos of your elite wealth management practice. You’ll ultimately thank yourself for holding out when the right fit presents itself.
Robert Sandrew is the chief growth officer at Integrated Partners, a national financial planning and registered investment advisory (RIA) firm.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.