For advisors who have spent their careers building their firms from scratch, selling to a larger firm is an important life event that can spark a range of emotions.
To better understand this process from the advisor’s perspective, HighTower Advisors partnered with market research firm Optima Group Inc. to conduct an in-depth study of the issue.
The resulting study, “Beyond the Paycheck: The Emotional Aspects of Selling Your Advisory Business,” uncovers the human aspects of dealmaking, including “what advisors think and feel” when considering selling all or part of their firms to a larger entity, and their perceptions about ceding some element of control to others.
The study consisted of 30 in-depth, one-on-one phone interviews conducted between Sept. 20 and Oct. 24, 2019, with key decisionmakers of advisory businesses with AUM of more than $750 million, both before and after a transaction.
Not surprisingly, advisory business owners confirmed that the decision to sell a practice goes well beyond the paycheck and is not just a business transaction. Among the key findings:
- 70% say they feel anxious or worried about partnering with an RIA aggregator
- 64% reported their top concern as losing operational control (advisors do acknowledge, however, that there are benefits that come with selling to an aggregator, including the advantage of size and scale)
- 45% are concerned about losing their identity because they feel they have developed a strong brand
- 36% said they were worried clients would react negatively
- 32% expressed concern about having to change aspects of their investment approach
Advisory business owners also feel strongly about maintaining a client-centric approach. HighTower notes that every advisor in the study said they viewed “culture and values” as a top priority and several said they would only consider a partner that could support an “elevated, high-touch” client experience.
“If a buyer does not put clients first, it’s a deal breaker,” one of the interviewees noted. Even though study participants expressed concern about how clients would react to a sale, they also suggested that clear communication can help clients view the change as positive.
The research further revealed that advisors are motivated to sell their advisory businesses for a variety of reasons:
- 50% of firms interviewed said their primary motivation would be to capitalize firm ownership
- 41% believed it would help to streamline succession planning
- 27% wanted access to capital for growth initiatives
- 27% hoped to gain a better technology platform
- 23% wanted to outsource back-office operations
The surveyed advisors all asserted their desire to retain control of client relations, but with some, trust was an issue, according to the findings. One respondent who had not yet sold their firm reportedly expressed concern about how a promise of autonomy could potentially change during a down market.
“Advisors looking for an acquirer are passionate about finding, first and foremost, a firm with human beings they can trust to shepherd them into the future,” explains HighTower CEO Bob Oros. “While valuations, legal paperwork and negotiations are all necessary, what matters most is getting a read on the people and culture you’re joining.” Among the questions that Oros poses:
- Have the acquirers taken the time to get to know how and why you started your business decades ago?
- Have they sought to distill and recognize the talents and strategies that led to your present success?
- Do they see your continued autonomy as a key strategy for organic growth?
As for tips for advisors, Oros recommends having several meals together, getting to know members of the extended service teams and not just the dealmakers. He also suggests visiting the firm's corporate offices to people-watch and become familiar with the culture.
“Ask yourself: Do I really like these people? The end-goal is to make sure you have found an acquirer that aligns with your culture and values. When those are aligned, trust and true partnership follow,” Oros emphasizes.
