AUM Acquisition is Your Ticket
Acquisitions is clearly how MVP's are growing. So why don't you acquire?
In my mind, its clear, among the arsenal of techniques employed to amass vast AUM, mergers and acquisitions (M&A) is the one that stands out as the most potent strategy. Yet, the reality is that a vast majority of Advisors struggle to understand the power of M&A as a growth mechanism, and many will spend a career envying their colleagues that are powering ahead of the pack.
The most astute advisors in the industry possess a dual skill set, excelling not only in wealth management but also in entrepreneurial prowess. Building substantial assets under management (AUM) is a formidable challenge, yet only a select few super advisors have mastered this art, boasting books of business in the billions. Meanwhile, the majority of advisors in the industry struggle to surpass AUM thresholds of $50 million, or even less at independent firms.
Acquiring or merging a book of business is no walk in the park, and certainly not for the lazy. Perhaps this is the reason why its only the super advisors that have honed their skills in consolidating AUM to perfection. To everyone else, it might seem like an anomaly, but I know that's not the case, everyone one of those transactions are done with great intent and some with precise negotiations.
Warren Buffett often says, "In the business world, the rearview mirror is always clearer than the windshield." Let's be frank, the investment business is always evolving rapidly, and thus now it’s demanding a sharper edge than ever before.
But currently, having an edge is the only way to power ahead, and mastering the intricacies of the M&A game is probably the tool that will offer the greatest payoff. But this on its own requires some serious commitment of resources and focus. Here's this thing, while opportunities to acquire AUM may appear scarce for many advisors, it's evident that the super advisors hold a distinct advantage in this arena. So how are those guys finding them?
"The stock market is designed to transfer money from the active to the patient." - Charlie Munger
You really should consider this concept and how aptly it applies to investment advisors, let me explain. Everyone in the business is aware of the demographics of this business. It's clear from the statistics that a significant portion of financial advisors are approaching retirement age, this transition has been the case for the last decade and it continues to be the greatest opportunity for young Advisor, look around you there are a lot of mature Advisors everywhere.
At the same time, larger firms are intensifying pressure on the Revenue Payout Grid, because some of those books of businesses are not well run and older advisors tend to underperform, just stating the facts.
In such an environment, advisors who grasp the nuances of the M&A game find themselves presented with enticing growth opportunities. This is the kind of environment where you can really make a killing, but only elite Advisors really understand the idea of reframing, and looking at how the fallout can prove to be goldmine. Pressure from the grid will continue to cause a shakeout of the weakest advisors, some will leave the industry altogether, this presents a formidable opportunity for the astute to acquire on the cheap. But the bigger game continues to be the retirement goldmine.
"Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
The First Step is Probably a Partnership
A prevailing trend in recent years has been the formation of new partnerships, driven by advisors seeking refuge under those with larger AUM. Consider Advisor A with $50 million AUM and Advisor B with $25 million AUM. By partnering, they can elevate their combined gross revenue, thus unlocking higher grid payouts. However, such arrangements come with challenges. Firms may resist, setting higher expectations for the partners. Additionally, future acquisitions may become complex, tying the partners' hands. Yet, this strategic move can maximize take-home income and serve as a preemptive step towards asset acquisition.
For Advisor looking to retire, partnerships offer succession opportunities, as seen when Advisor A plans to retire. By merging, Advisor B gains a pathway to acquire assets while enjoying higher payouts. This symbiotic relationship ensures a higher retention rate and potentially better negotiation terms during acquisition. In essence, partnerships serve diverse strategic purposes, from expanding AUM across jurisdictions to pooling marketing resources. Stay tuned for further insights into these dynamics.
"Risk comes from not knowing what you're doing."
Some smart Advisors are taking this a step further, not just focusing on acquiring new clients; they're also fine-tuning their portfolios by identifying clients and AUM that don't align with their practice's goals. They then carve those out and sell to reduce their risk and streamline the business even further, this is a pro move, as it reduces huge headaches in the long haul as well.
"Know what you own, and why you own it." - Peter Lynch
Advisors are heeding this advice by streamlining their client base to optimize performance and service delivery.
But it doesn't stop there. With retirement on the horizon for many advisors, the focus shifts to monetizing AUM to ensure a secure financial future.
As Warren Buffett famously quipped, "Someone's sitting in the shade today because someone planted a tree a long time ago."
Some mature Advisors are planting the seeds for their retirement by crafting exit strategies that maximize value and sustainability. For those approaching retirement, every decision counts. They're not just looking to cash out; they're strategizing on how to transition their practice smoothly while safeguarding their legacy.
"You don't have to be great to start, but you have to start to be great.”
This is where you need to be positioned, smart Advisors are taking proactive steps, starting with smaller acquisitions and building relationships that lay the groundwork for larger-scale acquisitions down the road. In essence, the wealth management business is a constant balancing act between growth and optimization, acquisition and divestment.
Advisors have to navigate these complexities with a keen eye on the future, knowing that in this industry, adaptability is key to long-term success.
"Innovation distinguishes between a leader and a follower." - Steve Jobs
In the investment business, it's the leaders who innovate and thrive.
Over the next few posts, I will continue to discuss specific strategies around Acquisitions and positioning yourself to exploit opportunities that others might be overlooking.