Acquiring minds cite big shortage of small RIAs to buy

Many small registered investment advisers would like to grow by acquiring another small firm. There’s just one problem: Finding a firm to buy.

“I get a letter every quarter asking me if I want to sell my practice,” said Jim Guy, first executive vice president and chief marketing officer of Cambridge Investment Research Inc., and the owner of a small RIA firm. “Firms identify offices in the right geography” and send them unsolicited offers on a regular basis, he said.

The practice demonstrates the difficulty of finding acquisition targets, he said during a succession-planning workshop hosted by InvestmentNews’ IN Adviser Solutions on Tuesday in Rosemont, Ill.

Several advisers who attended the workshop said that growth was an element of their succession plans, but that they had been stymied by the difficulty of finding a potential target. Firms that go to auction with investment banks such as FP Transitions generally attract at least a dozen bidders, which made auctions a poor place to look for acquisitions, Mr. Guy said.

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The solution? Strategic buyers have to get creative.

“Network, go to conferences, join associations,” said Kelli Cruz, director of IN Adviser Solutions, and a speaker at the workshop. “Let people know you are looking to buy.”

Mr. Guy said that some advisers think they’re willing to sell their firm, but ultimately balk at the idea. “The truth of the matter is their practices are their babies,” he said.

One way to get around that might be to offer a partnership deal with a potential prospect firm, perhaps in the form of a staged sale over several years, or to offer to buy a portion of another adviser’s portfolio.

“Some might be willing to take smaller steps” than an outright sale, he said.

Related Topics: IN Research, Valuation