As the pace of advisor retirement accelerates over the next five years, mergers and acquisitions—once the realm of distant hypothetical transactions for many independent advisors—are about to become a fundamental part of the business. And the opportunities for either purchasing or selling are arguably greatest with independent hybrid advisors, who theoretically could look at the widest possible spectrum of transaction partners within the independent advisory space.
There’s no question that independent broker-dealers are ideally positioned to help potential buyers and sellers within the hybrid advisor community benefit from these trends. Indeed, based on M&A patterns thus far, the industry can start to draw conclusions about some of the elements and expertise IBD M&A support platforms need to incorporate in order to truly add value for independent hybrid advisors:
1) Integrated and multi-disciplinary deal support personnel who are deployable on a moment's notice. Countless M&A transactions fall apart in our industry—even when the respective partners and their client bases seem to be a perfect fit—because the parties to the transaction were unable to line up the right partners and advisors to help them conduct timely due diligence, crunch the numbers, structure the agreements and get the deal across the finish line within a reasonable timeframe. Independent broker-dealers who seek to help prospective sellers and acquirers complete M&A transactions effectively must have these resources—auditors, valuation experts, legal counsel, integration experts, even M&A-focused human resources specialists—standing by to assist on a moment’s notice.
2) Ability to align the right kinds of financing with specific deal structures. Flexibility is the hallmark of the hybrid financial advice model. As an advisor’s needs and those of his or her clients change over time, the hybrid model allows that advisor’s practice to adapt accordingly. That's why it makes no sense for a hybrid advisor to find him or herself locked into a set of conditions that seek to fix the business’ assets and sources of revenue in place in exchange for financing a merger or acquisition. Independent broker-dealers can successfully help potential buyers and sellers work around this by developing the in-house expertise to provide financing themselves, or by facilitating a dialogue with innovative financing providers who understand that an advisor’s most valuable asset, especially for hybrid firms, is not real estate or equipment, but rather the goodwill and relationships they have with their clients—and in any buy, sell, or merge opportunity, practices should strive to maximize this asset through high retention rates in a transition. Access to capital and the ability to provide flexible financing with the appropriate terms, can help protect and maximize this asset.
3) Post-transaction integration support based on in-depth understanding of the hybrid advisor model. Any independent hybrid advisor who expects to be either a buyer or a seller of an independent financial advice business in the next few years is probably acutely sensitive as to whether any potential IBD partners have an in-depth understanding of the hybrid model, and how to integrate other business models within it. For example, sellers should not have to feel that their options are limited to buyers who employ the same business model they do.
This means that broker-dealer M&A support teams should have the know-how, experience and technological expertise to help hybrid practices successfully acquire and integrate practices on either end of the independent advisory spectrum—from fully fee-based to entirely commission-based—while at the same time enabling employees of acquired firms who may be continuing on with an acquirer to get up to speed quickly and seamlessly going forward.
Independent advisors across all business models seeking to maximize the value of the practices they have built will begin to study their options in the M&A market as part of their normal course of business, while those who continue on will realize the need to expand through acquisitions in order to stay competitive.
Independent broker-dealers have a crucial role to play in helping hybrid advisors in particular navigate this new environment, but only if they focus on the key elements of their M&A support platforms that add the most value for advisors and solve the toughest challenges.
Nathan M. Stibbs is executive vice president and chief strategy officer at Triad Advisors, the Atlanta-based, hybrid advisor-focused independent broker-dealer.