Before Taking Any M&A Action, Make Sure To Know Your ‘Why’

85% of RIA growth is currently being driven by senior advisors. How do you plan to sustain momentum and continuity as your founders start retiring?

Succession planning can take various forms – internal transitions, mergers with other firms, external sales, or even the choice to do absolutely nothing until it’s time to turn off the lights and lock the doors (although this last option is far from an acceptable solution given the fiduciary duty of care you owe to 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 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 on timing, skills, and willingness) an external merger or acquisition for the talent– sometimes referred to as ‘acquihires.’

M&A: A Pivotal Moment

If a merger or sale driven by succession has been on your mind, this article is for you. M&A represents a critical moment in the life of any financial advisory firm. It culminates years of dedication—late nights, early mornings, and numerous client meetings and prospect presentations.

To ensure the future well-being of your business, merging with another firm of similar size or larger can unlock numerous benefits and opportunities, including:

• The ability to deliver enhanced capabilities (such as tax and estate planning)
• Access to additional team members with differing areas of expertise
• Economies of scale that can drive faster ongoing growth and increase the competitive resilience of your enterprise
• Expansion into new geographic markets and/or specialty groups

M&A offers a tremendous opportunity to ensure that your clients continue receiving a standard of care that meets or exceeds their expectations. It provides 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 M&A opportunities often require considerable time and involve many moving parts, potentially obscuring the bigger picture. That’s why it’s essential to first define your ‘why’ before you consider any potential transaction.

Defining Your Why

Before exploring the viability of any merger or acquisition, you must clearly understand the underlying business reasons for pursuing it (i.e., your why). Take time to look beyond simply obtaining the highest purchase price and consider the following critical questions:

1. What drives your interest in merging or acquiring another firm now?
2. How does any merger or acquisition fit your long-term plans and strategic goals?
3. Are you clear about the opportunities—and challenges—a merger or acquisition may bring to your firm and clients? 

Establishing a clear why is essential, given that only about ⅓ of RIA leaders have a strong degree of confidence that their firm’s current next-generation leaders are ready now (or will be in the near future) to assume control. In many cases, internal succession simply may not be a feasible option for a wide range of reasons, including skyrocketing valuations that make it difficult (if not impossible) for the next generation to buy out the firm's founding members.

Without this 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 a possible transition. Clearly defining the purpose of any potential M&A activity increases the likelihood that your decisions will align with your desired outcome and enables you to assess potential partners and opportunities with increased confidence more effectively.

As mentioned in previous blogs on this topic, an internal transition will usually only be a viable solution for firms that have invested both time and capital. This applies to organizations that have built strong connections between clients and professional staff and have effectively developed future leaders who possess both the means and desire to take on leadership roles. If this process has not yet started at your firm and you plan to transition within the next five years, pursuing an external transaction by recruiting senior advisors or through M&A may be your only option.

Looking Ahead

Given the sheer volume of client wealth currently managed by an aging advisor base, we expect the number of M&A deals to 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.

The issue of human resources, however, remains the most significant bottleneck in the process. Firms that acquire other firms—without the human capital to handle the increased volume of clients—must ensure they can retain the personnel of the acquired business to succeed. However, 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 will examine eight more essential considerations for any merger or acquisition plan in the coming weeks. From valuation and client communication to talent development and regulatory compliance, these insights will be crafted to aid you in navigating transitions with greater thoughtfulness and strategy.

At ClientWise, we help firms grow intelligently—not just quickly. Whether your focus is on internal succession or pursuing M&A opportunities, we’re here to assist you in achieving your goals while ensuring the best outcomes for your clients and your team.

With a clear purpose and thoughtful strategic planning, your next steps in succession planning or M&A can secure your firm’s legacy and future success.

Coaching Questions

1. What drives your interest in merging or acquiring another firm now?
2. How does any merger or acquisition fit into the long-term plans and strategic goals of the business?
3. How will the merger or acquisition align with your personal plans and retirement timetable?

About ClientWise LLC

ClientWise is the premier business and executive coaching firm working exclusively with financial professionals. We specialize in helping clients optimize growth and maximize revenue by engaging as a knowledgeable partner in accomplishing specific and significant business results. Our full-service coaching program empowers financial advisors, wholesalers, managers and executives to enhance performance through customized, action-oriented solutions based on each client’s specific vision and situation.

Our certified coaches are members of the International Coach Federation (ICF). They adhere to ICF’s strict code of ethics and have the experience and insight to work with you on the unique challenges and opportunities you face each day.

Drawing from an in-depth knowledge of the financial industry, ClientWise’s mission is to professionally develop industry leaders and consistently raise the bar for industry service, commitment and integrity. Simply put, our singular focus is to help you get clear, get focused, and get results.