It doesn’t appear consolidation in the financial services industry is slowing down any time soon.
Over the last five years, advisors have experienced unprecedented instability as private equity firms and large consolidators continue acquiring broker dealers and RIAs. For many advisors, this has affected their businesses in a big way.
I’m currently working with an advisor who joined a firm she was very happy with only to have it acquired soon after. She left rather than transition to the acquiring firm. She carefully selected a new firm and within a year, that firm was sold as well. Needless to say, having moved twice in a short period of time is not what any advisor wants.
Unfortunately, this story isn’t as unique as you would imagine. The environment has created widespread skepticism. Advisors are increasingly unsure whether the firm they join today will remain the same organization a few years from now.
Our expertise on this topic helps with a pressing questions advisors are facing all too often:
If your firm just sold, what should you do?
First: Understand the type of acquisition you are facing
Not all acquisitions are created equal. Before jumping into a transition, you need to determine what kind of deal just occurred.
1. Is it a buy and hold acquisition?
In a buy and hold scenario, the acquiring firm purchases your broker dealer or RIA but largely keeps everything intact:
- Same clearing firm
- Same back-office staff
- Same technology
- Same payout structure
In many cases, this is a best-case scenario. Day to day operations remain the same for now. However, even here, advisors need to ask critical questions:
- What are the buyer’s long-term plans with the firm?
- Do they own other firms that could eventually be merged?
- What is their typical hold period (3–7 years is common with private equity)?
- Are you part of a long-term platform strategy or a short-term valuation play?
Even if nothing changes today, it’s still wise to have a forward looking strategy.
2. Is it a roll up or full integration?
This is where things get more complicated. If your firm is being rolled into another platform, you must immediately begin due diligence, just as if you were voluntarily changing firms.
Here’s what needs careful review:
- Clearing firm change
- Product availability
- New account numbers for every client
- New client portals
- New reporting systems
- New operational workflows
- Paperwork needed to move. When you hear “it will be paperless,” that is often not the full story. Many advisors discover too late that paperwork, client disruption, and administrative strain are significant.
- Payout grid changes
- Advisory admin fee schedules
- E&O insurance costs
- Technology fees
- Service & Back Office Support, Is the acquiring firm staffed to handle the influx of new advisors?
We often council advisors to speak with several advisors at the new firm and ask-
- How responsive is the back office?
- Are there service bottlenecks?
- Has service quality declined during previous acquisitions?
Almost every conversation we have with advisors includes consolidation concerns. Fear of making the wrong move or joining the next firm that gets acquired is very real. Reacting emotionally or ignoring the situation can be equally costly. The key is controlled, informed due diligence. If your firm just sold, don’t panic, but don’t ignore it either.
If you want a confidential conversation about your specific situation, we’re happy to help.
Jodie Papike is the CEO of Cross-Search, a third-party, independent broker dealer/RIA recruiting firm that connects advisors with the right broker dealers and RIAs. For more information visit www.Cross-Search.com
