Some 20 years ago, advisor Greg Friedman wanted to create client relationship management software for his planning firm. He hadn’t planned to make it commercially available to other planners, and had no idea it would become the basis of a new business.

The name of that software was Junxure. And the demand for it soared, eventually leading Friedman to provide it to 1,400 advisory firms through a company he co-founded in 2001 and sold on December 31, 2017, for a handsome $16 million. (That number comes from WisdomTree Investments, which funded Junxure’s purchase by AdvisorEngine Inc.)

After he sold his baby, Friedman found himself with money and expansive ideas. He began building out his RIA, Private Ocean LLC, immediately afterward with two acquisitions in 2018. They boosted his firm’s number of offices to four, expanded its roster of principals by essentially 50%, and grew managed assets $1 billion, nearly doubling the $1.2 billion it had.

“We’re trying to get to a size and scale that provides the economics to add client services, to create opportunities for employees, and to provide internal opportunities for ownership and succession,” says Friedman, a recipient of several industry awards (many for Junxure) with numerous mentions on top-planner lists.

His hunt for new acquisition targets is ongoing. But buying firms and building scale is about knowing how to merge cultures. Private Ocean’s two 2018 deals show how different those deals can be.

A Tale Of Two Mergers: Mosaic

Friedman’s acquisition philosophy requires a certain time commitment, and he is convinced of a few things about mergers and acquisitions in the advisory space.

One is that no matter how much due diligence is devoted to crunching a deal’s numbers, it’s important to allocate even more time to “the qualitative aspects of the business—the people, the culture. These are much harder things to assess,” he says. “You don’t read them off spreadsheets. You don’t get them from data.

“You’re buying a service business that ultimately is tied to people,” Friedman says. “It’s clients tied to their advisor. If the advisor gets uncomfortable after a deal and goes somewhere else, then a lot of their clients potentially go somewhere else, too.”

Consider one of Private Ocean’s purchases from last year: its October 1 acquisition of Norm Boone’s San Francisco Bay Area firm, Mosaic Financial Partners.

Friedman had known Boone for decades. They were both advisors who had at some point found themselves running software companies.

“Greg and I have known each other from both the RIA world and the software-vendor world,” says Boone, a Harvard MBA who co-founded IPS AdvisorPro, an investment policy statement software company, with his wife, planner Linda Lubitz Boone. They sold it in 2013.

Because of his long association with Boone, Friedman knew many of Mosaic’s staff members. So Boone and his trio of lieutenants came aboard Private Ocean as principals: They include Kevin Gahagan, who had been a Mosaic shareholder, and Channing Hussey and Sabrina Lowell, who had not been.

“The three of them together were a really important part of helping Mosaic become what it was,” Boone says, “and part of my role as the seller was to advocate about their importance.”

Boone is 71, and part of the reason he sold is that he wanted to exit the business. He had helmed Mosaic since founding it in 1987, sat atop the industry as a Financial Planning Association board member in the early 2000s and served on advisory boards to major service providers to the advisory industry. It was time to move on.

But an internal succession plan at Mosaic failed to come to fruition, and the only way forward was for him to sell. Fortunately, he had some idea what Mosaic was worth since he had discussed merging it or selling it to outsiders over the years. It’s something you need to be willing to think of immediately after you launch a firm, Boone says.

He also knew what made a firm like his attractive to others, and he fashioned Mosaic accordingly.

To create a strong staff, he maintained a budget for employee training and development. He took the time to mentor, too. Beyond talent, RIA buyers want a crisp operation.

“We had our procedures tied down really well,” says Boone. “That made it relatively easy for a buyer to be able to envision taking the engine that we were and putting it into their shell.”

When he decided to sell Mosaic, engaging San Francisco investment banker DeVoe & Company, he set goals for the sale. One, obviously, was money. “I wanted a minimum amount and we exceeded that in all cases,” Boone says. Four formal bids for Mosaic came in, some from national firms. But, “we didn’t choose the one with the highest number,” he says.

That’s because his objectives in selling went beyond money—to continuity for clients and opportunities for employees. “We felt like these were more predictably going to be accomplished with the more local firm, Private Ocean.”

In the deal, Private Ocean gained Mosaic’s two offices in San Francisco and Walnut Creek, Calif. Fifteen of Mosaic’s 19 personnel stayed on after the transaction.

Boone continues to mentor at Private Ocean, but his primary function is retaining his Mosaic clients by helping them through the transition. “Clients are working with the same people and, at least for the time being, the same processes,” Boone says, noting that only a handful of his old firm’s clients have left the fold.

This doesn’t mean changes won’t come. But as Boone reminds his clients, Mosaic never stood still. “You would’ve experienced changes anyway.”

His next step might be consulting, leaning on his industry experience and connections.

A Tale of Two Mergers: Lakeview

The other deal Friedman struck last year was very different.

On the first day of 2018, Private Ocean acquired Seattle’s Lakeview Financial Group. Unlike Boone, Lakeview’s owners were less familiar to Friedman, yet they would be joining as working partners. That meant getting to know them would be a big part of the deal. It meant asking, “What does financial planning mean to you?” “What are your processes and procedures?” “How do you handle things like providing feedback or celebrating birthdays?”

No two cultures are identical, of course. But Friedman saw that Lakeview clearly shared with Private Ocean “a deep-seated caring for clients—really wanting to do a great job for them—and intellectual curiosity.”

Lakeview managed $380 million and housed three owners plus seven staff members (all of whom were retained). The firm was attracted to Private Ocean’s resources, such as its robust investment committee and marketing expertise. Moreover, the people at Private Ocean were “eager to collaborate, with a universal expectation that we would become greater together than we would as separate companies,” says Lakeview co-founder Kelly Keydel.

The Seattle office has already tapped the broader and deeper expertise that comes with being part of a larger organization. The Lakeview staff can now access firm-wide knowledge in executive compensation, business sales and private foundation creation. “Although we could help clients with specific aspects of these planning situations before,” Keydel says, “we may not have been able to advise in as comprehensive a manner as we are able to now.”

Partnering would also benefit staff, she knew. “A larger firm can offer career opportunities beyond what we could. As a smaller firm, our employees were wearing many hats. We have seen some of them move into more defined and challenging roles with opportunities to contribute in more rewarding ways.”

Such opportunities offer a clearer career trajectory to younger talent, for which there is fierce competition.

The former Lakeview team is now hoping to raise its profile in the Puget Sound area this year in its quest for new clients.

Threading Cultures Together

Friedman has worked to foster a culture of collaboration. “Any issue we’re addressing, we approach it by saying, ‘Who needs to be involved? Whose voice do we need to make sure is included?’ The way we wrote it in our guiding principles is everyone has an important contribution.”

Team members actively assist co-workers. “To a person and almost to a fault, they will lean in and say, ‘You’ve got a lot on your plate. What can I do to help you?’” Friedman says.

One challenge is that Private Ocean is now a multi-office firm, making it vital to ensure no one feels like they’re staffing an outpost. To that end, twice-yearly companywide meetings bring everyone together. In between assemblies, employees visit other offices for days at a stretch to work alongside their new colleagues. A recently launched internal company newsletter further bridges the geographical divide.

“Keeping people happy, keeping clients in their seat through a transition—there’s no question it’s tricky,” Friedman says. But helping to smooth the sailing a little is the fact that the firms all had similar clients, with Lakeview serving a higher percentage of clients with smaller asset bases.

Friedman is clear about the firm’s trajectory.

Private Ocean provides comprehensive financial planning, wealth management and investment management, Friedman explains, but “we refer out to insurance specialists for placement, attorneys for estate documents and CPAs for tax preparation”—services that a future, bigger Private Ocean may provide in-house.