Growing through acquisition or recruiting advisers

Looking to expand your business by positioning your firm to be the “succession solution” for an impending wave of older advisers who eventually will exit the business? Trying to capture market share by recruiting breakaway advisers? Independent advisory firms that have experienced growth usually have considered developing an acquisition or adviser-recruiting program at some point in their firm’s life cycle. This concept of growth has attractions including collaborating with an adviser that is “like-minded”, achieving greater revenue and scale to increase profits, developing new business lines, or addressing long-term strategic challenges, such as succession planning.
Is developing this type of growth strategy worth pursuing? First, making an acquisition or creating a recruiting strategy is not for the faint of heart. It requires time, commitment, resources, sales acumen and a world-class advisory platform. Even the best strategies do not guarantee success, and most advisory firms do not experience breakout success.
When my company is asked to assist an advisory firm with their acquisition or recruiting efforts, I ask the adviser a single question to gauge his or her ability to play effectively in the acquisition-and-recruiting game.
“Why would a financial adviser choose to affiliate with your firm instead of every viable alternative in your market?”
If your firm does not have a succinct answer to this question, you will likely find it challenging to execute an acquisition or recruiting plan. Why is this? First, there has been a significant increase in entities, all competing for a finite set of advisers. The number of large strategic acquirers/partnerships, regional RIAs, independent broker-dealers and platform providers has mushroomed over the past 10 years. Each of these firms have invested material capital into their platform, has dedicated sales and marketing capabilities, and has identified an “ideal” adviser to acquire or recruit. Advisory firms must compete with these firms, many of which either have set up or will be setting up a “storefront” near you. Here are some common barriers advisory firms may have with recruiting:
• Inability to articulate a unique and compelling value proposition to their “ideal” adviser.
• Lack of organizational focus — opportunistic versus dedicated resources.
• Inability to build a sales funnel of ideal advisers to acquire or recruit.
• A noncompetitive compensation plan.
• Limited or poor marketing strategy and execution.
Are you still ready to get in the acquisition game? In confidence, a client of ours who recently completed a combination with another advisory firm deadpanned, “We are very pleased with our success with the deals we recently completed, but we lost a bunch of brain cells in the process.”
Indeed, advisers hear a great deal about the success, but very little about the misfires, engagements that were stopped at the altar and challenges involving new adviser integration.
So how do firms deploy acquisition and recruiting strategies effectively? There are several key capabilities that make certain advisory firms more successful than others. When thinking about developing and executing an effective strategy, advisory firms should consider taking the following steps:
1. Define a value proposition to answer the question above: Why would an adviser want to join your firm versus all other available alternatives?
2. Create a profile of an ideal recruit. A profile will help your firm screen out candidates that are not a fit.
3. Decide on the affiliation and economic model. This determines whether you are seeking advisers to become employees, owners or independent contractors. The economic model will forecast future revenue and profitability if success is achieved.
4. Develop an acquisition or recruiting platform. The platform determines what an adviser will receive in terms of support services and capabilities.
5. Build and execute a sales and marketing plan. The best-managed firms take a systematic approach to defining how they attract qualified prospects.
6. Hone your relationship and negotiation skills. At the end of the day, advisers “buy” advisers, just like people buy people. Firms wanting to attract advisers must have skills beyond simply negotiating economics.
7. Button up your transition and integration capabilities. Advisers will want to know how their clients will be transitioned and what life will look like after the transition.
Before an advisory firm starts dipping its toes into the acquisition and recruiting game, a broader question firms they might ask is, “What are we trying to solve for to begin with?” For many advisory firms they are trying to get to the next level of growth, drive scale, create business continuity or solve for succession.
Advisers naturally look to acquisition (or becoming “the buyer”) to solve these problems. However, wouldn’t it be prudent for advisory firms to consider other options such as combining their firm with another entity or finding a strategic partnership? The optimal approach may be to have another entity “pull” a firm to the top of the mountain versus the advisory firm continuing to climb it alone.
Getting into the acquisition and recruiting game can be a great path for growth. Advisory firms considering this strategy should take stock in their capabilities and gauge their commitment to playing in the space. More broadly, advisers should take the time to evaluate all of their alternatives in terms of business model design.

John Furey is the founder and principal of Advisor Growth Strategies, LLC. He can be reached at [email protected]