In next month’s issue, we’ll conduct our eighth annual RIA survey and you’ll get a picture of how much this profession is changing. I’ve had a chance to scan the preliminary numbers, and they reveal a business populated with a growing number of major players.

For the past two issues, we’ve been lucky to have contributions from both Philip Palaveev and Mark Hurley. Both are acute observers of the advisory business and both have stressed that if advisors want to thrive in the future, they need to rethink the way they run their firms.

Taking an RIA firm to the next level isn’t for everyone. As senior editor Eric Rasmussen chronicles in this month’s cover story on JMG Financial, some partners may decide not to go along for the ride, either because they see greener pastures elsewhere or they don’t want to be a part of a business they don’t recognize any more.

Essentially, Palaveev’s article focuses on building a business with scale that is no longer dependent on the presence of a few individuals for its lifeblood. As next month’s survey will show, advisors are learning to do this in a variety of ways.

One of the more successful firms we’ve written about over the years is Balasa Dinverno Foltz, which came about through the merger of two mid-sized RIA firms in the Chicago suburbs in 2001. Though one founding partner ended up leaving the firm, its growth has placed it on a different trajectory from many of its rivals. 

Personally, I suspect that this type of intra-RIA consolidation that Palaveev details will continue to dominate the business when compared with consolidators who write big checks. Mergers of equals and fold-in acquisitions of smaller firms by larger ones seem like the logical way to go. Hundreds, if not thousands, of RIA firms are having these discussions at present.

If an advisor decides to enter serious discussions with a potential acquirer, I’d urge them to read Mark Hurley’s article. Estimates vary, but most experts believe that only one out of seven or eight merger discussions ends up in a consummated transaction. Hurley’s article details the attributes of successful buyers and sellers. [Hint: The longer negotiations go on, the less likely the odds of a deal.]

Nowhere is it written that all advisory firms need to scale their businesses. As advisors know from their clientele, many medical and legal professionals retire very comfortably without cashing out in a major way. They just need to prepare for it, both for their own financial reasons and to provide continuity for their clients.

Evan Simonoff, Editor-in-Chief
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