Buying Versus Build Approach to Strategic Growth for Financial Advisors

Buying versus build approach to strategic growth for financial advisors

Depending on your firm, some financial advisors see opportunities for strategic growth through partnering and buying. Simply put more and more opportunities are opening up every day with the aging population of financial advisors. I get asked all the time to discuss opportunities when it comes to strategic growth. There are things to look out for and things to avoid. Here I will share a few success stories to think about.

Revenue lift

When buying another financial advisor's book of business, we look to see if there is a potential revenue lift, that is easy to implement. We all have the optimism that by buying another book of business there will be additional revenue opportunities for different products and services. In one recent case, the asset management fee was higher for the purchasing advisor because they were on a discretionary platform and had the opportunity to raise the revenue of the new book of business. This is because of sudden acceleration in digital transformation is a buying opportunity. Some financial advisors are being forced Into new technology with hundreds of clients costing them a lot of time. Not only did this transaction make sense, the time effort and energy gave the new advisor two things. First more revenue and 2nd once clients adopted the technology a win-win scenario. The key is clients adopting the technology which is usually more of a hurdle in the financial advisor's mind than it is in the client's mind.

Exit planning

Financial advisors who want to exit over the next five years need to plan. How many financial advisors do you know have the capacity to take on hundreds of millions of dollars of assets, and pay a big lump sum check, add staff, and acquire you all at once? Here are a couple of examples recently I've worked on. Financial Advisor A decides to buy financial advisor B over five years. A financial advisor takes on 20% of the clients each year over five years. In the latest case, it was approximately 100 clients so adding twenty clients a year was manageable. Advisor B sold their block of business, had a written exit plan, and became a rainmaker for Advisor A. We set up a second rainmaker code so new clients and prospects advisor B acquired over five years became a secondary sale or another block of business to sell for advisor B to advisor A.  The bonus in all of this is that advisor A minimized high lending costs at higher interest rates because it was structured overtime and getting creative with cash flow. Creative exit planning can be a win-win for financial advisors and clients.

Mistakes in acquisition

Are you buying clients or revenue? So many times I see advisors look at clients and get excited about the future opportunities in the hope that the revenue will be there to create. Unfortunately, the revenue rarely meets expectations and the advisor is stuck with non-ideal clients. 

I understand that some financial advisors hate marketing and would rather acquire to grow than market to grow. Or just buying the same type of clients over and over don't expect different results. I worked with a few financial advisors who acquired higher net-worth clients in niche markets that they didn't currently have. For example, they acquired more clients with professional corporations that needed more planning and advice. I always look to move upmarket or into niches with book-buying acquisitions. I also look at the lack of digital transformation and the time and opportunity cost. I look for ideal client families not just households. I look at the written financial plan of the top clients and see the type of advice in writing they have received. I rely on some of my trusted partners for valuation advice and I look at client satisfaction and experience process is or implement some of our tools to help really evaluate the book from the client's point of view not just the adviser's point of view.

Success stories

I have seen financial advisors go from 100 million AUM to over 300 million aum in one acquisition. I have seen Financial advisors' revenue go from 2 million to 5 million. I've seen financial advisors sell to institutions at a higher multiple. I have seen financial advisors acquire books of business and acquire amazing talent and built new teams. All kinds of opportunities out there to grow through acquisition. If you would like to grow dramatically now think about what that looks like on paper and sometimes what you think about, opportunities appear.  What is your plan for acquisition in the next year?

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