M&A activity among RIAs is intense and looks like it will continue to be strong. Demographics with many advisors getting older, aggregators often supported by private equity money, and a changing competitive landscape are some of the factors continuing to drive the M&A trend.

A central question is what happens after the sale or merger. How satisfied or dissatisfied are the advisors who have sold or merged their firms with the outcomes? Based on a survey of 311 RIAs who sold in the last five years, half were satisfied, and half were not.
Based on the research for those advisors who transition their firms looking for an exit, the level of total financial payout is the most critical factor determining satisfaction. This includes the upfront monies and any earnout or client retention components of the final payout. For those advisors looking to exit, dissatisfaction is a function of their last payout. Again, this number includes any earnouts and client retention qualifications. Simply, the advisors believed they deserved a higher final payout than they received. Other factors, such as having few operational or compliance problems, the strategic direction of the new firm, and cultural alignment, are not that important. Also, there was no reported conflict with new management or other advisors.

For those advisors who sold to grow, the acquirer must be able to deliver on the promise of support and additional resources. Doing so is the most crucial factor that translates into satisfaction. For these advisors wanting to grow, they see the failure as their new firm being unable to deliver the “support” or resources they said they would. For example, they were told they could connect with centers of influence to get new clients, but this failed to materialize. While other factors were also crucial for many advisors, they are highly correlated with the ability of the acquirer to deliver the expected value.

It is a truism that people are unhappy when their strongly held expectations are not fulfilled. And that is just what happened in these situations. The most significant factor for advisors dissatisfied with the sale or merger was personal conflict with new management or other advisors. This is a consequence and function of some of the other factors. When expectations—or, in many advisors' minds, “promises”—are not met, they may feel deceived or exploited. This, in turn, often leads to personal conflicts.

More advisors will likely sell their practices in the coming years because of demographics and competitive pressures. These advisors would be well served if they were especially critical of potential acquirers' partners. It is easy to be enthralled by promises of big money and many business development and other support services. The advisors need to be highly confident that their expectations are met.

From the perspective of the acquirers, positive word of mouth is very beneficial, as many are likely looking for advisors wanting to sell. About a third of the satisfied advisors who sold their firms said they recommended their acquirer or merger partner to other advisors. This can only be beneficial by creating a more robust pipeline and more positive acceptance of an acquirer or merger partner.

In contrast, more than nine out of 10 dissatisfied advisors have criticized their partners to other advisors. Unhappy people tend to be more vocal about their situation, which is evident here. There is a high probability that negative comments steer advisors interested in selling or merging away from these acquirers or merger partners, and the potential partners are none the wiser.

Firms looking to grow through acquisitions are rewarded when they know what will happen to advisors who sell or merge with them. Overpromising and underdelivering are detrimental to everyone involved. Clarity is essential, and expectations must always be realistic and kept in alignment.

Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.