Experts repeatedly warn that the aging financial advisor population needs to get its succession plans in order, but a new report says advisors need to straighten out something else: their heads.
The emotional side of selling or buying an advisor business, and the tactics an advisor can use to get through a deal without going nuts, is the subject of a new white paper by Fiduciary Network LLC, an investor in wealth management firms. The report was written by Fiduciary Network's CEO Mark Hurley, COO Yvonne Cantor, and managing directors Benjamin Robins and Steve Cortez.
The findings of the report were based on its experiences with the 17 investments it has made in advisors, and more significantly, the countless other deals it was involved in that never materialized.
The failed deals, in fact, are what led to the white paper. Fiduciary Network officials say psychological factors—including unrealistic expectations by sellers and buyers—were key reasons deals failed.
“In these transactions, a combination of the buyers’ and sellers’ inexperience and each side’s inability to understand the other’s perspective became insurmountable obstacles to completing a deal," the report states.
Delusional Sellers
The report focused on the psychological aspects of being both a seller and a buyer, while cautioning that the paper is a collection of laymen’s observations rather than a clinical psychological study. “We do not consider ourselves to be psychologists and do not pretend that this report is any sort of scientific study,” Fiduciary Network writes in the report.
Nonetheless, the report does argue that delusional thinking is a key reason why advisor merger and acquisition deals fall flat; it also spells out how buyers and sellers can use psychology to gain an edge over the those sitting on the other side of the bargaining table.
The white paper, for example, offered the following advice for sellers who want to mentally prepare for a deal:
Do not come to market until you are emotionally ready to sell.
The report suggests that advisors should get emotionally prepared to sell by not dwelling on the transaction, but by focusing on the lives they will lead after their business is passed onto someone else.
Many advisors find it hard to let go of their business—the reason many of them enter into an agreement to sell and then ultimately fail to pull the trigger to close the deal, the report notes.
Advisors who successfully make the transition frequently spend time preparing for life after the sale, with some going as far as hiring a life coach to shepherd them through the process.
“Long before they bring their firms to market, smart selling owners are already excited about moving onto what is next in their lives,” the report states. “They have identified new challenges and opportunities, often far different from what they have been doing for the last couple of decades.”