One recent merger of a financial firm from Connecticut with another from New Jersey, a deal that created a regional presence for both companies, offers a lesson to any smaller advisories looking to expand.

Lawrence J. Annello and Sheri Iannetta Cupo joined their firms after 10 years of working with each other. The existing relationship allowed them to smooth out some of the kinks that often crop up in these ventures. Both principals say they felt as if they were operating as one entity even before they actually were one.

The merger took intense planning and some adjustments. But now SAGE Advisory Group LLC in Morristown, N.J., with $59 million in AUM, and BroadView Financial Planning of Farmington, Conn., with $32 million in AUM, have re-emerged as SageBroadview Financial Planning in a deal completed this past January.

Mergers and acquisitions among smaller firms are growing, according to a Schwab Advisory Services 2013 report of activity in the market. The number of M&A deals among RIAs jumped 20% in 2013 over the previous year, while the average deal size declined by 38%, Schwab says.

RIA-on-RIA deals that dominated the year’s 54 transactions usually involve smaller firms, which is why the size of the deals declined.

The way Annello and Cupo conducted their long-term merger is ideal for smaller firms that want to position themselves as a regional force by joining together, says Annello, though it may not take everyone a decade to do it.

The marriage of their firms began as a chance meeting a decade before. Annello and Cupo sat next to each other at a Napfa conference in Mystic, Conn., in 2004, and started talking about their experiences and needs.

They came from different backgrounds. Annello first became immersed in finances when he was 16 and his mother passed away, “leaving me and my dad in survival mode on everything from managing money to learning how to cook. My dad taught me early on the lifelong importance of looking out for each other and making responsible financial decisions.” That is a philosophy he now tries to impart to his clients.

Annello started his career as an accountant with Del Conte, Hyde, Annello & Schuch P.C., an accounting firm. He began doing some financial planning work for the firm’s clients—an activity that eventually grew into the separate financial advisory business of BroadView Financial. The emergence of a separate planning firm from the accounting outfit was evolutionary, Annello says.

“I met Sheri and I started doing some tax preparation work for her clients.”

By 2012, he was offering investment advice and managing assets. BroadView was owned by the accounting firm, where Annello remains a partner. (He is now co-principal with Cupo at SageBroadview, which is owned half by the accounting firm and half by SAGE Advisory Group.)

Cupo had a completely different type of experience. She started as a corporate executive for General Electric, serving in a variety of financial and customer service management positions before abandoning it to study financial planning. She founded SAGE Advisory Group in 2001, working out of her home in Morristown, so she could care for her two young sons.

Just as the recession hit in 2008, Cupo broke her neck in two places when the family was involved in a serious car accident. The long, slow recovery gave her time to reflect.

“The experience strengthened my resolve to help others face their own challenges, especially in connecting their financial decisions with their deepest life goals,” she says. She went back to work, but her practice remained small: Cupo and her sister Lynn Iannetta Baker as staff.

Both Cupo and Annello found they needed more resources and personnel if they wanted to grow beyond their local offices. So the two principals first hit upon the idea to begin sharing the staff that neither firm could afford to hire on its own. David Principe and Chris Annello [Larry’s son] worked in the Connecticut office and were on the BroadView payroll, and Cupo reimbursed Annello for the time they worked for her. (Annello remains based in Connecticut and Cupo in New Jersey, and technology connects them, although they visit back and forth regularly, as they did before the merger.)

Although sharing services was working, the two firms were duplicating a lot of their work: Both were doing compliance, both maintained a Web site, they each had to deal with software issues. Merging seemed like a good option.

“A merger impacts everything you do,” Cupo says. “You think about the big stuff, but the small stuff can trip you up, such as changing your e-mail signature or the contact person and address for your bills. There are so many things to think of when you merge two firms. Compliance is a huge issue, as well as technology and service agreements. You have to standardize payroll and benefits. You also have to change the media presence of both firms to reflect the new firm.

“The legal details took a lot longer than we expected. We had two people in practically full agreement on how we wished to move forward, yet the legal paperwork bogged us down,” she says.

They also found it important to have a solid communication plan for clients and staff. “Change is scary, so you need to over-communicate to reassure those involved,” Cupo advises.

Still, five months after they made the decision to do it, the merger was complete. Though the deal did come with some personal sacrifice.

“I started SAGE partially because I wanted to be my own boss, and it was difficult to give some of that up when we merged companies,” Cupo says. “SAGE was my baby, and now I have to look to someone else when I make decisions. There was a lot of soul searching on both of our parts before we merged. But in the end the benefits of merging outweighed the difficulties.”

The merger was made easier because Cupo and Annello both had a similar approach to clients and handled investments similarly, with a buy-and-hold model that rebalanced portfolios when necessary. The two firms were also already using the same software. 

The new entity is fee-only, and there are no commissions involved with the accounting firm, Annello says. Transparent costs are very important to SageBroadview. The firm itemizes financial life planning and money management fees so clients can see exactly where their money is being spent. Financial life planning fees are flat quarterly fees based on the client’s net worth. Investment management fees are paid quarterly, set at an annualized rate of 50 basis points of the value of the managed accounts. Consulting services can range up to $400 per hour. SageBroadview uses funds from Dimensional Fund Advisors.

Cupo and Annello are both CFPs, as is Principe, and Chris Annello is taking the CFP examination this year. Then the firm wants to bring in junior planners to expand the client base, Annello says. The merger will give staff members a clearer career path and allow them to specialize. Cupo and Annello want to offer key employees ownership rights at some point.

“As an individual owner, you have your hands in everything. For the right kind of person, that is exciting, but it eventually becomes exhausting,” says Cupo. “That’s when you find that it makes sense to get a partner. For example, Larry does compliance for the firm, and that allows me to concentrate on our marketing. In that way, we have been able to divvy up the work that is required to run a business.”

With their partnership, Annello has been able to focus on small business clients because of his tax background, and Cupo handles a lot of executives and middle management people and their corporate benefits issues because of her corporate experience. The focus for the new firm is the busy professional—corporate managers and executives as well as business owners.

“The merger benefits the clients, too,” Cupo adds. “We can do a deeper dive into investing and analysis on their behalf because we are not pulled in so many directions at once.”

Their only hesitation was that their friendship might be affected if the merger did not work out.

The Connecticut market is less saturated with advisors than the New Jersey market, so most of the new clients are coming from Annello’s area. But the larger, more regional presence has proved attractive to new and old clients alike, and having a strong tax planning focus differentiates the firm from others, says Cupo.

Both members of the partnership find it helpful to open up their personal lives to clients and potential clients. Details of their lives are on the Web site, and they openly share their histories with clients, Annello says. (He’s a serious amateur photographer and a devoted Yankees fan; she likes yoga, meditation and rock ’n’ roll concerts.)

“We are not shy about sharing our stories,” says Annello. “If I talk from the heart, the clients can relate to me. For instance, when I went to college I had to get a student loan—I had to buy into my education. I use the same philosophy with my three children and I share that experience with my clients. You have to buy into your success.”

Sharing is important, says Cupo, because “people often feel that finances are intimidating. People come into the office and it can feel like a therapy session. If we put ourselves out there, clients feel more comfortable.”

She adds, “You should not consider merging unless you have complete trust and comfort with the other person. Make sure you have your values lined up and that you have each other’s back. If you don’t, the merger is not going to work.”

Annello says he would tell others thinking about a merger to do their homework and take their time before attempting it. An advisor can find a potential merger partner by talking to others at conferences and networking events.

“You might find someone else with the same needs,” he says. “For us, we did not want our separate firms to be just Larry and Sheri. We wanted our clients to be SageBroadview clients. The merger sets us on the path to our goal of becoming a lasting financial planning firm to serve generations of families for a lifetime and beyond.”