“I love being an advisor and have built a great practice. My business generates more than $3mm in annual fee based revenue and it affords me a lifestyle far better than I ever imagined. I have a top notch staff and wonderful clients with an aggregate $550mm in assets under management.” Perhaps change the stats but I’m betting that this sounds familiar to you- and what a wonderful position to be in. There’s no dilemma at all until you get a call from a recruiter like me telling you that he/she is representing a spectacular opportunity- a fee only RIA firm with $3B under management servicing approximately 250 high net worth client households, and generating $20mm in annual revenue. This firm is looking to grow by acquisition or merger, is very well capitalized and is interested in you and your business. It’s a high class problem for sure, but nonetheless the query certainly raises some very important issues that you will eventually need to reconcile:
1. Growth Trajectory: Can my firm sustain its current trajectory? What are my overall growth goals and can I reach them by staying the course? Will organic growth alone be enough? Will what got me “here” be enough to get me “there”?
2. Succession Plan: Are my firm’s business development efforts entirely dependent upon me? Could the firm succeed me if I were hit by the proverbial bus tomorrow? And, if I were out of the picture, what would happen to the value of my firm?
3. Cost of doing business: It’s so much more expensive and challenging to run a small business today than ever before and, thus, harder, for a standalone independent to sustain itself. Factor in rising labor and client acquisition costs, and increasingly onerous regulatory demands, and it’s not easy to maintain desired profit margins.
4. Gap Analysis: If I take an honest assessment of where my firm is at today, what are the things I need to solve for? Where do we need to make an investment? Should we add to staff? How do we improve our service offering, solution set and process in order to remain relevant, efficient and profitable? Are we willing and able to make the necessary investments?
So, here’s the calculus. If you believe that you can reach your goals in a reasonable period of time by staying the course, then that is exactly what you should do. After all, the likely reason you decided to become a business owner in the first place as opposed to an employee advisor is because you value autonomy and control of your destiny more than anything. The rub, though, is that overall enterprise value is impacted most by profitability, sustainable growth trajectory, client retention, a business development function that succeeds the principal(s), and scale. So, not solving for these things may leave you short of your desired end game. And, a super competitive recruiting landscape makes it very difficult to hire your way into plugging the necessary holes. Thus, those that value maximizing enterprise value, scale, and an expanded capacity/solution set more than they value their complete independence might respond favorably to overtures from prospective acquirers. After all, “a rising tide lifts all boats” and the RIA space is no exception. Firms that solve for all of the things that most impact value will benefit from enhanced multiples. The choice is yours- it’s your business life, and you get to live it any way you desire.
