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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
Ray Sclafani (00:00.334)
Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights, and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics, and mindset shifts that set the top 1 % apart from the rest. I'm Ray Schlaffani, and I'll be your host.
Did you know that 85 % of RIA growth is currently being driven by the most senior advisors in the wealth management industry? How do you plan to sustain momentum and continuity as your founders start retiring? In today's episode, I'd like to briefly explore the decision to pursue M &A as an action step towards succession. And before you do so, just to explore this reason as to the why behind that decision.
Succession planning can take various forms, whether it's an internal transition, mergers with other firms, external sales, or even the choice to do absolutely nothing at all until it's time to turn off the lights and lock the doors. Although this last option for me, for you, is far from an acceptable solution given the fiduciary duty of care you owe your clients. Nevertheless, many RIAs face significant challenges in planning for the future
often responding reactively to circumstances instead of proactively shaping them. In fact, recent studies reveal that less than 40 % of RIAs have a written succession plan, even though the best practices recommend starting the planning process at least 10 to 15 years before departure. Advisors often postpone initiating the process until their target retirement date is within five years. This delay
restricts their time to maximize enterprise value and guarantee a smooth transition of client relationships. But the more time you allow for planning, the more options and choices you'll have for succession and the greater your likelihood of success, whether you're seeking an internal sale or depending upon timing, skills and willingness, an external merger or acquisition for the talent, sometimes referred to as aqua-hires. Well, let's talk about &A. If a merger or sale
Ray Sclafani (02:24.856)
Driven by succession has been on your mind, well, this episode is for you. &A represents a critical moment in the life of any financial advisory firm. It culminates years of dedication, late nights, early mornings, and many, many client meetings and prospective presentations. To ensure the full well-being of your business, merging with another firm of similar size or larger can unlock numerous benefits and opportunities. That might include
the ability to deliver enhanced capabilities such as tax and estate planning, and with the expansion of wealth management in the RIA channel. Just look around, you're seeing more and more family offices emerge. You're seeing large aggregators like Merit Financial, Creative Planning, Wealth Enhancement Group, Lido and others expand their offering and services. You'll also note that access to additional team members with different areas of expertise can be a big benefit worth unlocking.
economies of scale that can drive faster ongoing growth and increase the competitive resilience of your enterprise, as well as expansion into perhaps new geographic markets and or specialty groups. All of these are good reasons to consider unlocking these benefits and pursuing &A, but &A offers this other opportunity to ensure that clients continue receiving a standard of care that meets or exceeds their expectations. By no means is &A the only solution, but
It does provide a robust defensive strategy to help fend off competitors. And it's one of the best ways to monetize a lifetime of passion, dedication, and hard work that you've invested in making the firm successful. However, these significant &A opportunities often require considerable time and involve many moving parts, potentially obscuring the bigger picture. And that's why it's essential to first define your why before you consider
any potential transaction. Before exploring the viability of a merger or acquisition, you must clearly understand the underlying business reasons for pursuing this decision. It seems so obvious. Well, wait, wait a minute, Ray. The why is I want to solve a succession strategy. Well, I'd ask you to hit the pause button for just a moment and take time to look beyond simply obtaining a succession as a solution or the highest purchase price.
Ray Sclafani (04:52.13)
consider a few critical questions. First, what drives your interest in merging or acquiring with another firm specifically? And if you have a firm in mind or you've been approached, think about that firm specifically. Second, how does any merger or acquisition fit into your long-term plans and strategic goals? And third, are you clear about the opportunities and challenges
a merger or acquisition may bring to your firm and its clients. Establishing a clear why behind the decision to pursue &A is essential given that only about a third of RIA leaders have a strong degree of confidence that their firm's current next generation leaders are ready right now or will be in the near future to assume control. That's an astonishing statistic. Only a third of RIA leaders have that degree of confidence.
In many cases, internal succession simply may not be a feasible option for a wide range of reasons. It might be skyrocketing valuations that make it difficult, if not impossible, for the next generation to buy out the firm's founding members. Well, without any kind of clarity, your decisions may become short-sighted or misaligned with the firm's long-term goals. You must first grasp your own motivations and how they integrate into your strategic vision for the business.
before considering any possible transaction. Clearly define the purpose of any potential &A activity. Well, that will increase the likelihood that your decision will align with your desired outcome and enable you to assess potential partners and opportunities with increased confidence more effectively. If you don't do this work, anybody ringing your doorbell will absolutely look like an attractive partner. As mentioned in previous episodes on this topic,
an internal transition will usually only be a viable solution for firms that have invested both time and capital. After all, the highest valuation, you typically are looking for high transferability. And if those internal next generation team members really understand the clients, understand the value proposition, understand all the workflow, the processes, the fact finding, the procedures, the quality of advice being delivered, well,
Ray Sclafani (07:12.62)
that increases the transferability. That increases the likelihood of a successful internal transition. But this only applies to organizations that have built strong connections between clients and the professional staff likely to take over. That means that they have highly effective future leaders who possess both the means and desire to take on these leadership roles. If this process has not yet started in your firm,
and you plan a transition within the next five years, well, pursuing an external transaction by recruiting senior advisors or through &A, well, that may be your only option. Given the sheer volume of client wealth currently managed by an aging advisor base, the numbers are staggering. We expect the number of &A deals to only continue on a steady upward trajectory. From the market's perspective, this is likely a positive development.
If the volume were to expand dramatically, it's uncertain where the necessary acquisition capital would originate. However, we're seeing a flood of private equity enter the marketplace. In fact, Mark Hurley estimates it's somewhere between a trillion and $2 trillion with a private equity on the sidelines, looking at these attractive businesses worth investing. The issue of human resources, however, remains the most significant bottleneck that we see in the process.
firms that acquire other firms without the human capital to handle the increased volume of clients, they've got to ensure they can retain the personnel of the acquired business to even succeed. And oftentimes those businesses are not well staffed. And so you're gonna have to invest in some of those businesses anyway, unless you can right size some operational efficiency with your existing team. If retirement or succession is the sole motivation for the seller, buyers must pay extra attention to staff retention.
Acquisition will not address your human capital needs. Only recruitment can do that. We're going to examine several more essential considerations in future podcasts, but I want to make sure that from evaluation and client communication to talent development and regulatory compliance, all the insights we'll share with you here in the weeks ahead will be crafted to aid you in navigating transitions with greater thoughtfulness and strategy. Feel free to check back to the ClientWise blog for some of those
Ray Sclafani (09:34.834)
blog articles that we'll be publishing in the weeks ahead as well. At ClientWise, we help firms grow intentionally, not just quickly. Whether your focus is on internal succession or pursuing &A opportunities, we're here to assist you in achieving your goals while ensuring the best outcomes for your clients and your team. And we collect no success fees. We are simply a fee-for-service, helping advisors make the right kinds of strategic decisions.
And with a clear purpose and thoughtful strategic plan, your next steps in succession planning or &A can secure your firm's legacy and future success. Now with each of our episodes, as you may know by now, if you've been a steady listener, we provide a few coaching questions and these are designed to go just a level deeper and have you and maybe others in your organization explore today's episode by communicating answers to these questions with one another.
So there's three questions today. The first is what drives your interest in merging or acquiring with another firm right now? How does any merger or acquisition fit into the long-term plans and strategic goals of the business? And how will the merger or acquisition align with your personal plans and retirement timetable? Well, thanks for tuning in and that's a wrap. Until next time, this is Ray Sglafani. Keep building, growing and striving for greatness together.
we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article.
Ray Sclafani (11:11.989)
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