Learning about Fisher Investments’ minority stake sale for $3 billion in June left virtually every wealth management industry observer both incredulous at Fisher’s good fortune and also envious at their eye-popping valuation. That blockbuster deal should remind any registered investment advisory firm seeking a successful exit that ultimately you make your own luck.
The start of this year has witnessed a 20% increase in firm M&A deals, according to consulting firm DeVoe & Co, and the trend is expected to continue.
As several news reports noted, Advent International, a private equity firm, and the Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund, were attracted to Fisher’s healthy cash flows, which tracks with conventional M&A wisdom. But there are several non-conventional factors now enticing RIA buyers too—and one you should be paying attention to is having a modern technology stack in place in your practice.
If you read that and are skeptical, it’s likely because you’ve been pitched on how much tech tools can help you in the day-to-day of the business, not on how they can generate firm value. That’s actually a narrow view of what good technology adds to an RIA, according to buyers surveyed for an April report by industry research firm Cerulli Associates. Cerulli noted 25% of the buyers in their research said their M&A deals were done specifically to acquire intellectual capital or technology.
Another interesting factoid is that the Cerulli report identified six key factors driving deals nowadays, and two sit squarely in the tech acquisition category: the need to pick up new capabilities, or “add to or bolster the firm-wide technology stack.”
Why is that the case, and how does that translate into adding to a firm’s valuation?
Private equity firms often seek to acquire businesses with strong operational efficiencies and scalable technology. A robust tech stack can significantly enhance the firm's value by demonstrating streamlined operations and the potential for growth.
Banks, insurance companies or larger financial advisory firms looking to expand their client base and service offerings could value your tech stack for its ability to integrate seamlessly into their existing systems and improve overall efficiency.
Family offices often look for established wealth management firms with efficient operations to add to their portfolio. A proven tech stack would be attractive as it indicates a well-run business with the potential for smooth integration and continued success.
Finally, strategic buyers looking to acquire businesses that complement their own could value your tech stack for its ability to enhance their technological capabilities and improve client service.
Meeting New Digital-First Client Demands
There’s the obvious reason you can relate to if you’ve shopped for a car in recent memory. When kicking the tires in the lot you might’ve asked, “How new and good is the technology in this vehicle? Is it reliable?”
The RIA firm buyers identified by Cerulli are a lot like car buyers in this sense. Performance definitely matters, but they also want to pay for modern technology that just works and doesn’t come with the prospect of costly repairs or major maintenance in the near future.
The Cerulli report also notes RIA firm buyers are looking to scale up their business and respond to digital-first client demands—and they’re looking at firms that can help them achieve that without having to build out a modern tech stack from scratch.
This finding was especially compelling: 100% of Cerulli respondents reported high levels of satisfaction with their financial planning tool when it was acquired, versus just 44% satisfaction rates of firms who built their own tool. That’s critical when you recall financial planning software, at 85%, has the second-highest RIA market penetration of any type of advisor tech tool, according to the latest T3/Inside Information Advisor Software Survey. The 78-page report compares data across the past three years and includes statistics on market penetration and user satisfaction ratings.
When they can gain modern technology that doesn’t require much tinkering, it also helps these acquiring firms looking to break into new territory with speed to market, Cerulli noted,
Tech-Savvy Firms Grow Faster
Aside from these points, there are additional benefits your firm accrues by virtue of having a modern tech stack that ultimately makes your firm run better and add appeal to potential buyers.
For one thing, it can help your firm find new growth by helping it deliver great service at scale. Fidelity Investments released a study this spring that found tech-savvy firms were growing faster in terms of client count (on average 22%, compared to 8%) and assets under management (22% versus 11%) than other firms that weren’t relying on a modern technology stack. That’s a huge competitive gap that is going to tilt the odds in your firm’s favor with prospective buyers.
And having modern digital wealth management tools is now table stakes for client retention and satisfaction—a recent J.D. Power study noted “the digital channel has become central to the client experience for all types of investors.” This shouldn’t be surprising when you step back and consider how much we’ve traded even in-person experiences for taking advantage of online convenience. Are you still going to the grocery store, for example, or are you putting in an order through DoorDash or Instacart?
Possessing a modern technology stack is also great for employee satisfaction too. I’ll cite another J.D. Power report, which surveyed over 4,000 advisors to learn how they felt about their jobs. The biggest complaint among all those advisors? Nearly one-third (28%) said they weren’t spending enough time with clients; those complaining spent 41% more time monthly than their peers on administrative duties. That’s why I’m such a big proponent of adopting a modern, fully integrated and comprehensive wealth management platform that utilizes automation and connected workflows to take the burden out of daily tasks, such as client data entry, and simplifies the lives of your employees by improving their ability to serve clients.
So, let’s review: an RIA running on modern technology that can enhance the buying firm’s tech stack—and also boasts a roster of satisfied clients, healthy growth stats, and a happy, productive workforce? That sounds like a great option for any firm in the market looking to add through acquisition.
John Mackowiak is chief revenue officer of Advyzon, a digital transformation company focused on building the most comprehensive tech platform for financial advisors and investment managers. With over two decades of experience in the advisor technology business, Mackowiak leads the sales and service effort and contributes to the development of the Advyzon platform.