PANC 2011: Growing Pains

At the PLANADVISER National Conference in Orlando last week, two advisers explained how they go about buying other advisory firms to grow their own businesses, each with very different methods.

Jaime Benedetti, owner and financial adviser of Benedetti, Gucer and Associates, an independent franchise of Ameriprise, explained how he and his partner look for firms that are struggling or have been mismanaged – this allows them to buy the floundering firm for a cheaper price, and they will have an easier time bringing that business and its personnel under their management system with less risk of conflict.

That is one way to do it. Michael DiCenso, National Practice Leader/President, Gallagher Retirement Services/GBS Investment Consulting, has another strategy.  “We don’t want the ‘project,’ to buy from someone who’s been out of touch for years. We want business leaders still to be involved, and have a growth mentality, not looking for a cash out.”

“If someone asks me quickly, ‘What’s your multiple?’ that’s not for us,” DiCenso continued.  “They just want to monetize and get out. We want someone in this business. There are a lot of people who dabble in retirement, but we want a good fit, a visionary fit. If an acquisition goes bad, it’s usually because there’s a philosophy mismatch.”

Benedetti agreed with this and said it fits into his strategy as well: “Practice philosophy is something you need to be acutely aware of. We actually like to buy a practice that’s not in great shape. We felt we could add value; a potential to increase the revenue over and above what’s already there. If you buy a well-running practice, you could bump heads with its leaders.”

Where to look? 

Several advisers in attendance at the panel discussion were curious to know where Benedetti and DiCenso look for and find their acquisitions. Benedetti suggested the option of using an intermediary, such as FP Transitions (which is what Ameriprise promotes, he said).   

Another intermediary was represented on the panel by Bruce Harrington, Head of Retirement Sales and Strategy for John Hancock Financial Network. Harrington brought up JHFN’s Build4Success platform, which assists in the M&A process as well (see “JHFN Launches DC Adviser Consulting Program”). 

DiCenso said he’s only used a third-party for one acquisition. He said he relies mostly on networking at industry conferences and staying in touch with contacts across the industry (which includes networking on LinkedIn. See “PANC 2011: Business Development for the Next Decade”). 

Whether the other firm is with your B/D or not also makes a difference in how the deal is brokered, said Benedetti.  If it’s an internal purchase, “it’s easy, like flipping a switch and you get all the revenue from that practice,” he said. But from the B/D perspective, they have the same level of revenue. “If you bring in a practice from another B/D, you’re the golden child because that’s all new revenue.”

Benedetti agreed with DiCenso though, that the process requires a good deal of networking – even without clear intentions of wanting to buy.  “A business transition plan is a great way to segue to buying the firm in the future,” he said, adding that every firm should have an “in case of emergency” plan with another firm.  At some point, this can lead to an acquisition (for more about business transition plans and succession planning, see “The Importance of Succession Planning”).   

One other space for acquisition opportunities is away from the advisory field.  Harrington said he has seen advisers buying third-party administrators (TPAs), and Benedetti said he has considered buying a CPA because “if you can offer clients in-house tax help, that’s a great value to offer.”

What to Look Out for  

There are a few things to be extra cautious of when looking to buy or sell a firm.  Harrington said one of the biggest mistakes he sees advisers make is not thinking about this early enough. “If the head adviser

Benedetti said it’s important to think about how long the transition period will be.  If the person you’re buying from wants to “get out fast,” he said they would lower the price since there’s more risk involved, as opposed to someone wants to stick around for a few years.  There’s also the risk of attrition, he said – it’s safe to assume some clients will leave, no matter who smooth you make the transition of management, because at the end of the day, it will always be a relationship business.  A possible solution to this risk is including a clause in the agreement that says the price will be reduced depending on how many clients leave.   

However, there will always be surprises and the process is a tricky one, DiCenso said.  “You won’t know it all from the courtship – not until you’re married,” he said.  You want to learn as much as you can during the “courtship,” but uncovering every truth before the final deal is signed is not realistic.  His concluding message was that if you’re interested in growing through acquisition, you should do a lot of research to see what is out there and what will meet your needs.  Whether you’re looking for a succession plan to lead you to retirement, trying to grow your business, or trying to improve a deficiency in your business, a solution is out there if you just go out and look.