Inside the Deal: What Makes Retirement and Wealth M&A Stick?

Art by Alfonso de Anda

A global pandemic. Market volatility. Rising interest rates. Almost nothing seems to be stopping the rampant merger and acquisition activity in the workplace retirement advisory and wealth management space.

In June alone, PLANADVISER has reported on acquisitions of advisors managing billions of dollar by SageView Advisory Group, Hub International Ltd., OneDigital Investment Advisers LLC, NFP Corp., and Cetera Holdings, an advisory network focused on the individual client space.

Experts have been predicting that the confluence of factors in the market—including the higher cost of borrowing money—would start to dent transaction volume. According to M&A consultancy Wise Rhino Group, deal flow in retirement and wealth had a modest decline in 2022, but through the first two quarters of 2023 has come in strong “as private capital continues to chase the independent retirement and wealth advisory space.”

But acquisitions do not necessarily mean sustained success and growth for the acquired advisory or its new parent. How are the aggregators managing all this inflow? And perhaps more importantly, how are they seeking to make the deals stick for the long term?

Joe DeNoyior, president of Hub Retirement and Wealth Management, says it’s a process of identifying an adviser or advisory team that is the right fit for the aggregator or broker/dealer’s needs, but also one that has a growth plan that will be fed and supported by joining Hub’s network of retirement, wealth, insurance, and employee benefit offerings.

“By bringing those folks into our organization, does it allow them to continue to grow? Even add fuel to their growth?” DeNoyior says. “That is absolutely key for it to be a success.”

Expanding the Circle

DeNoyior came from the retirement plan advising side of the business, joining Hub in 2019 when his Washington Financial Group was acquired by the aggregator. Many of the aquisitions of retirement advisories—which, like DeNoyior’s WFG, often already have some wealth management—stemmed from relationships and knowledge about potential adviser target, with everyone being from the “401(k) circle.”

“When you look at all the acquisitions, we had a relationship in some form or fashion with a lot of them in the beginning,” he says. “Now, as we expand our circle, we have to spend a little bit more time learning more about the actual individuals in that firm.”

Over at OneDigital, which has also been rapidly expanding in recent years, the aggregator is also looking for partners who see the benefit of joining a larger organization that can help them fuel growth.

“We are very intentional, because we want to make sure that people that join our organization are taking advantage of the things that we can provide and that would make them more effective and efficient,” says Carrie Ohm, vice president, corporate development.

Ohm, who spearheads OneDigital’s onboarding process, notes that not all deals make it to the end. Very often, it’s within the 90-day vetting process that questions or issues emerge that are a red flag to both sides that it’s not going to be a good fit.

“Inevitably, as you get into the consummation of the deal, what we call the final diligence phase, people will show their true colors,” she says. “It takes somebody who understands the benefit of aligning with the bigger company and giving up some of the control. That is not for everybody.”

Deal Architects

Ohm came to OneDigital from a career in recruiting financial advisers and advisory teams. Leading the company’s acquisitions team was a great fit because, she says, it had many similar components to recruiting teams that would be a good fit for the business and lead to further growth for both sides.

Even so, she cites the many “complexities that come along with the acquisition landscape.” In just the past two years, Ohm says, she and her team have worked on 23 deals in the retirement and wealth management division.

As a “deal architect,” Ohm says that the only rule of thumb is that no two deals are alike. “When you’ve seen one M&A deal, you’ve seen one M&A deal,” she quips.

To get through the large amount of deal volume, OneDigital has 35 people on its acquisitions team that begin work as soon as a letter of interest, or LOI, is in process. Once a deal is done, however, the team’s work begins to fully integrate and set up the new business for success.

“One of the things we have learned from the acquisitions we have done is that if we rush the process, it is likely to create issues either with the integration or with the onboarding of the teams, and certainly could impact client retention,” she says.

At OneDigital, something the aggregator has only started doing in recent years is identifying an executive sponsor to partner with the acquired firm, Ohm says.

“That person is charged with helping [the acquiree] find their way,” she says.

Breaking Bread

Over the past year, Arthur J. Gallagher has built up both its retirement and financial wellness acumen with the purchase of advisory firm Buck, as well as F3 Companies, a turnkey wealth management provider.

Now, Gallagher is starting a push—largely in the western U.S.—of acquiring financial planners to provide participants with wealth management services, says Jeff Leonard, Gallagher’s financial and retirement services practice lead.

Leonard says he has a team that is “spread out geographically” and tasked with looking for acquirees in financial advisement that fit Gallagher’s needs.

“Culture is really important,” he says. “If we are going to grow through acquisitions, then you need to have a great cultural fit so you are not constantly banging heads. … I like to ask, ‘would you have this person over to dinner? Would you introduce them to your family?”

Part of this fit, Leonard says, is finding advisories that are excited to take on the Gallagher brand and ethos. That doesn’t mean, he says, that it’s “Gallagher’s way or the highway,” but that they want a collaborative culture where there’s pride in the brand and the capabilities of a national team.

To ensure that success, he says, they like to bring potential acquisition targets to Gallagher’s headquarters in Rolling Meadows, Illinois, to “break bread.”

“I think it’s important for people to see us in our natural habitat,” Leonard says. “We want them to know what it’s going to be like from day one, before we close a deal. That’s really important to us.”