Part 1 of a 2 part series
The 4 drivers that independent firm principals need to focus on to enhance growth, enterprise value and their position in the M&A marketplace
The recent spate of mergers and acquisitions has led many principals of independent advisory firms to consider their own futures.
“If we stay along our current course, will we be well positioned not only for growth, but also for increased enterprise value, making us more attractive to buyers of businesses like ours?”
In a seller’s market such as we are in now, it’s a question that every quality, growth-minded person should be asking. Whether you are a financial advisor building your business as an employee or the principal of an independent firm, the need to accelerate growth should always be top of mind. If, though, you have your sight set on a bigger prize – setting the stage for merger, acquisition or to monetize your business – you need to think beyond increasing assets under management and consider also the need to increase enterprise value.
Enterprise value is built upon a foundation of four key drivers that, when executed properly, create an opportunity to improve client service, increase AUM and attract top talent – all of which enhance organizational value.
- Service, capacity and human capital
With the right people in the right positions, a firm can continually offer value-add services to differentiate itself from its competition. With the advent of the “Robo-Advisor” and intense competition from new and existing firms, providing a more holistic wealth and investment management suite of services will continue to be a driver of retention and growth. Services such as financial planning can increase wallet share with existing customers and also be a key differentiator in the market. Without the appropriate staff mix, however, adding new clients and assets can be an exercise in futility, resulting in products and services that are poorly delivered.
- Infrastructure
State of the art technology and processes – both client-facing and internal – require substantial investments, yet can increase efficiency, be leveraged across the organization and set the framework for scaling the enterprise. When attracting talent, a sophisticated technology offering can also be a key differentiator – the one that puts your organization at the top of a prospect’s list.
- Scale
A properly scaled business allows for a firm to justify reinvesting in it. Once an infrastructure and economies of scale with custodians and service providers are realized, operating leverage kicks in as the cost base stays fixed and incremental revenues drop to the bottom line.
- Succession
In 10 years there will be 30% less advisors and 50% more wealth to manage. While a succession strategy doesn’t solve for growth in the short run, only those businesses that have taken the critical step to plan for the future will be in a position to sustainably grow and capture market share left behind by retiring advisors. The multiple applied to businesses with a definitive succession plan are higher than those that are dependent on only one key person.
Next steps…
After fully understanding the four key drivers that influence enterprise value, you can then embark on designing a strategic plan to fill those gaps required to effectively move the needle. So take this time to do some benchmarking based on the four drivers and how your firm stacks up against its peers, reviewing internal business plans and your personal goals. In part two of this series, I’ll share four strategic initiatives to consider and the potential roadblocks you may encounter along the way.
Read part 2 of this 2-part series…
