The vast majority of RIAs are not ready for growth through mergers and acquisitions, which is helping big firms grow more rapidly, said Dynasty Financial Partners CEO Shirl Penney.
Advisors usually lack the capital, infrastructure and mindset to supercharge their growth inorganically, Penney, a former top executive at Citi Smith Barney, told an audience of advisors last week at the Schwab IMPACT conference in San Diego.
“There are a whole host of things you want to make sure you can do to put yourself in the best position,” said Penney. “Then you get into a rhythm. Firms become a machine on M&A, and they’re growing like this in large part because they already have the organic piece cruising along and they want to figure out how to get into a system on the inorganic front as well.”
To be successful engines of inorganic growth, advisors should have a well-established brand identity, possibly including a niche, said Penney.
Firms should also have a well-conceived technology stack in place, said Penney. “We need to get it right across the organization so you don’t have to hire up as you grow. That’s where you can really get scale into your business.”
Many of the day-to-day operations of the firm should be automated, said Penney, and client portals and applications should enable clients’ digital experience to move across platforms and devices.
They should also have an understanding of how firms are valued and how deals are funded, he said.
For those thinking about mergers and acquisitions, it’s hard to tell whether today is the optimal time to sell or acquire a firm, said Penney.
“None of us know what inning we’re in in terms of the capital markets,” he said. “We can all agree we’re not in the second or third inning.”
But Penney noted that capital markets in the U.S. have recently entered record territory for growth on a month-on-month basis and the rally might be “a little long in the tooth.”