A designed beauty of synergy is that it serves only to add, never subtract.
—Barb Rentenbach

Synergy has been defined as a phenomenon where one plus one equals three. We agree. For years, we’ve been reading about how the financial advice business will experience a proliferation of mergers, acquisitions and consolidations. And recently, the activity and the articles written on the subject seem to have picked up. And while this information may be interesting to read about, there are questions we all need to ask ourselves to determine whether we want to participate in this activity and, if so, how do we go about doing it and how will that affect our practices?

This article is not meant to determine whether this is a good trend, or to pass judgment on those who have merged—some successfully and some not. This is about one firm’s experiences and to provide a process for those who are considering a merger or acquisition. First, while mergers are defined one way and acquisitions another, we have chosen not to label what we have done as either. We have simply enhanced our practice by adding offices that have been successful in providing financial planning services.

We have had some success and some failures. We learned lessons from both and believe the process we have developed greatly enhances our success ratio. And while the sample we have is not large, we are confident.

One of our early attempts was a mistake and we certainly learned from it. At that time, we were interested in growing and looking for people who had successful client bases. We felt that, with the exposure to our financial life planning process, these people would assimilate into our practice and adopt our core values. We were wrong.

We brought in someone who had a large “book of business” with a major wirehouse and trained him to deliver financial life planning services. He never switched from the selling mentality to a service offering that places the clients’ interest first. After several months and a great deal of time and effort, we realized that a mistake had been made. But it was a valuable lesson and we were determined not to repeat it.

The next time we invited someone to become part of our firm was seven years ago and it was someone we knew very well. Michael Smith, in Atlanta, had a successful office with his wife, Elizabeth Jetton. And while Elizabeth has moved on to coaching and consulting with other advisors, Michael is running a successful RTD office in Atlanta with Roberta Goldbaugh, an accomplished financial planner.

We were confident that this would work for several reasons. First, Michael and I were members of a study group comprising practices that specialized in financial life planning. So we were confident that Michael would be comfortable with our service offering. In addition, Michael and Richard Busillo, RTD’s CEO, were mentors in the FPA residency program and knew and respected each other. So while we never put a “pin in the map” for Atlanta, we knew that Michael would be a valuable part of RTD.

He certainly has demonstrated that over the years. However, as successful as the relationship has been, remember that transitions are labor-intensive and that it will take time to coordinate investments, planning software, client management systems, portfolio reporting and many other areas.

Will it be worth the effort? We certainly believe so and recently added a second office in Johnstown, Pa., (again, not an area we would have necessarily targeted). Monica Garver, an experienced and capable financial planner, runs that office. About the transition, she recently wrote, “I do consider myself RTD, not MMG any longer.”

We want to share with you the decision-making process that we used with our newest office and how we incorporated the lessons we learned into a process that, going forward, we believe will significantly enhance our ability to attract and successfully integrate future practices so that both parties benefit. Of course, we understand that very few people embrace the financial life planning process as we do. However, the process for creating successful relationships will be similar; it is my desire to help those of you who may be contemplating a cooperative effort by sharing what we have found to be invaluable tools. The amount of time and effort that goes into joining two practices is very daunting and avoiding mistakes is crucial.

I asked Michael Smith to provide us with his assessment of why the cooperative effort has been successful for him. He wrote the following:

“One: Freed up time—I typically say it got me out of the “running a business” part of running a business. Before merging with RTD, I wore the following hats—payroll manager, accounting and tax returns, portfolio manager, compliance officer, marketing director, bill payer, financial planner and so on and so on. … Eliminating all of those activities freed up time to provide better client service, focus on marketing and the luxury to just sit and think about the broader picture of every aspect of our business.

“Two: To me, the camaraderie has been really important.

Having others who are all on the same train, moving in the same direction to discuss issues, strategize, commiserate, and just laugh and have fun has been HUGE!

“Three: The most important part (far and away) is being philosophically aligned. Knowing Roy and Rich as well as I did would not have mattered at all if our philosophies had been conflicted, because if that piece isn’t in place—if everyone isn’t on the same train—then none of the above mentioned benefits matter because the relationship won’t last. “

Over the years, since our deal with Michael was consummated, we have frequently discussed what we would need to do as a firm to duplicate our success with the Atlanta office. We’ve had many discussions with other practices, but none have resulted in an agreement until this year when the Johnstown office became part of RTD. Early this year, we created a task force to address the issues of mergers and acquisitions. The decisions made were extremely helpful in determining that this new associate would be an ideal fit for our firm.

The first thing you need to determine is what the ideal candidate would look like for your firm. For us, it was the sole proprietor whose success created a situation where compliance, administration, implementation of investments and other areas were becoming so burdensome that it was difficult to devote the time necessary to service and attract clients. While it may be different for your firm, we decided that large multiple advisor firms would be extremely difficult to assimilate into our service offering. Once that candidate is identified, the following process is followed to ascertain if it is a fit for both parties:

Are they philosophically and culturally a fit for our firm? Do they share our core values? These attributes are much more important than location. The proof of this is our success in Atlanta, even though our main office is in Philadelphia.

Both parties need to completely understand their modes of operation. For us, it is providing comprehensive financial life planning versus primarily managing money. Are they comfortable with the financial life planning process as practiced by our firm?

The compensation structure needs to be discussed early on. Are they comfortable with an ensemble approach to compensation or do they prefer a silo method where they are directly compensated by the business they attract and service? For us, the ensemble compensation arrangement is what we have implemented.

Understand and determine how each other’s technology platforms (e.g., financial planning software, portfolio management, CRM, etc.) will be integrated.
While it is not necessary, having a common custodian is crucial in making the transition smooth. This of course will facilitate the asset transfers and change of advisory paperwork.

Shareholder/equity opportunities should be discussed early and clearly defined. At our firm, all of our senior advisors are, or eventually will be, shareholders.
Our experience has taught us that integrating two firms is a labor-intensive and time-consuming process. For example, one cannot simply discard the investments of one firm to implement the favored investments of the other. It will take months and in some cases years to complete this process. If each party uses different CRM, portfolio management and financial planning software, transferring clients to these platforms may take many months, and each firm needs to be patient.

However, in our experience, it has been worth the effort. At RTD we know that we could not handle more than one of these each year. It takes tremendous effort from our investment department, financial planning department and administrative staff to make these mergers successful. Hopefully, the guidelines we have developed will help those of you who are considering integrating other firms into your practice. If you do, you may discover that the formula for synergy, one plus one equals three, is significantly understated.