The registered investment adviser industry continues to report declining organic growth numbers, with many firms struggling to see gains above that of the stock market. With the lure of an infusion of capital from private equity investors jumping on the heads of RIA owners, the pressure to grow can be deafening. As the average age of advisors in our industry continues to rise, so does the average age of clients, meaning that more is being spent on their portfolios than is being added to them. Some RIAs must bring in $100 million or more in new assets each year to balance and offset the drawdown in client portfolios. When the organic growth engine grinds to a halt, many firms turn to M&A, thinking, “If we can't grow through our sales and marketing efforts, let's go buy assets to grow our AUM numbers.”
This tactic can work, assuming the RIA thinks strategically about the types of clients and advisors you want to attract. But before switching from organic to inorganic growth, it's important for firm leaders to take stock and ensure they're set up for success. First, do you have the right marketing materials to attract advisors? When RIAs make the decision to attract advisors in addition to clients, they often mistakenly grab the same pitch deck they've used for years to attract clients. When looking for advisors, your messaging to end customers is important, but not as vital to an advisor as the operational story you have to tell. It's imperative to let the seller know that once they join your firm, you'll handle operations, compliance, human resources, investments, etc., for them, and they can go back to focusing solely on customer relations and sales efforts. them for business development.
It is also important that your firm is ready to successfully support the sudden influx of new clients and accounts that will occur due to your M&A activity. The best way to ensure this is to examine how your firm is supporting its organic growth today. If new customers complain that it takes weeks to open accounts and transfer assets, you'll need to address these internal inefficiencies before pursuing an inorganic growth strategy. If it takes six to eight weeks after the end of the quarter to bill client accounts, your firm is not ready to support incoming advisors and their clients (nor will you succeed in pulling counselors to join you!). Reporting is another area to copy. If you can speak to a specialist group within your firm that deals with performance reporting and will review quality reports on a quarterly basis, ensuring they are sent to clients in a timely manner and/or posted to a portal, you will put yourself ahead of the pack of other buyers.
Other signs that your operational processes are not supporting your current growth will include repeated trading errors caused by miscommunication between customer service and merchandising teams. If client portfolios aren't performing or rebalancing as intended because instructions between teams are simply falling through the cracks or being misinterpreted, you shouldn't assume things will magically improve when you drastically increase the number of portfolios to manage when a firm or team of advisors joins your organization. If your firm's customer relationship manager is nothing more than an Outlook contact database or file server containing shared customer documents, you may not be positioned to scale your organization and support more customer relationships. customers. You need a central repository where all employees can access client meeting notes and client communications.
While M&A can be a viable strategy to grow AUM numbers, it is essential to ensure your firm manages its current processes and supports your existing clients before pursuing an inorganic process. This includes getting the right marketing materials to attract advisors, as well as the operational readiness to support the influx of new clients and accounts that come with M&A activity. Internal inefficiencies, such as delays in opening accounts, billing, reporting and miscommunication between teams, must be addressed to ensure a smooth transition and successful integration of acquired assets. Additionally, having a robust CRM system and a centralized repository for customer information can help scale the organization and support more customer relationships. By taking these steps before marketing yourself as a buyer, an RIA can position itself for sustainable growth and long-term success, both organically and inorganically.
Matt Sonnen is the Chief Operating Officer at Coldstream Wealth Managementas well as the creator of the digital consulting platform COO Societywhich educates RIA owners and operations professionals on how to build more impactful and profitable enterprises. He is also the host of the popular The COO Roundtable Podcast