James Poer, CEO and president of Kestra Financial Inc. in Austin, Texas, has handled several acquisitions for Kestra, which is a recent break-off from NFP, and has helped Kestra advisory clients buy and sell businesses. He believes the consolidation trend within the financial services industry will mean more advisory transitions in the future, and that advisors should focus on certain key aspects when looking to make a deal.
“Acquirers need to be specific about what they are looking for in terms of geography, size and revenues, as well as the philosophy of the firm to be acquired,” he says. “If agreeing on a joint vision is a challenge early on, it might be better to continue looking for a better fitting practice. Not compromising on the quality of the acquired practice will increase the chances of achieving a successful acquisition.”
Debt is an acceptable way to buy a firm, Poer says, particularly if leveraging loans for an acquisition provides extra funding needed to buy a higher-quality practice. While more than half of all advisors making acquisitions do not leverage any outside financing, about one-third get loans for more than half of the acquisition amount.
Also consider the ages of both the advisors who will remain and their clients. “You don’t want to buy a firm where a majority of the advisors are ready to retire,” Poer says.
He suggests implementing the deal in under 12 months in order to retain key personnel and make the transition as seamless as possible for clients.
“Even if the principals in the firm you bought are gone within a year, it’s smart to keep some advisors and support staff so clients have continuity and familiar faces,” Poer adds. “Wealth management is a business driven by people and relationships.”