Succession planning isn't driving all M&A

While the desire to implement a succession plan and retire may still be the driver behind a lot of the merger and acquisition activity of the past several years, there are two other extremely common, though much less publicized, motivations.

First, the economics are undeniably attractive right now. Second, many advisers simply see better futures for virtually everyone involved if they join forces with a larger firm.

Much continues to be written about the high valuations for wealth management firms. Big numbers make attractive headlines. Private equity-backed firms have not only helped drive prices up to the point where most founders simply cannot afford to sell their practice to a next-gen adviser; the outside buyers are providing them with a financial security they could never have imagined a decade before.

But a second, not purely succession-driven motivation behind the increase in M&A is the desire for a brighter, more self-directed future for everyone concerned.

Quality of life and opportunity. When it comes to the future of their practice, virtually every one of the hundreds of financial advisers I have spoken with wants to ensure that their clients are well served, that their staff’s careers are enhanced, and that they themselves can leave behind many of the grinding operational responsibilities and get back to advising.

On the client side, it’s clear that the larger wealth management firms (some of which are backed by private equity) can provide a lot more services and responsiveness than a small shop can deliver. For example, it’s now common for large firms to offer in-house tax advice and compliance, estate planning and document preparation, insurance advice and solutions, Medicare expertise and sophisticated educational tools.

For staff members, being part of a large, growing organization provides a much greater opportunity for career enhancement. I’ve encountered numerous situations where a very talented employee was “stagnating” at a small firm and was able to blossom once they became part of an enterprise. 

For many financial advisers, the upside of joining a larger firm is also magnified by a downshift to working part-time and getting to serve primarily their favorite clients. Or their goal is to no longer run the day-to-day business. Quite frankly, they can’t wait to relinquish oversight of the tedious back-room tasks that suck energy and bring no joy.

For other advisers, those who love marketing, the main upside to partnering with a larger firm is that they now get to spend their time pursuing bigger clients. With a large organization behind them, they are free to find new, interesting target companies or complex cases that they didn’t previously have the bandwidth for.

And yet still some other advisers are excited to take on greater responsibilities and wind up in leadership roles, whether that’s operational, training, or leading teams of people. They get to leverage their years of experience into a key oversight position within the larger firm.

And, of course, some advisers actually are just ready to retire.

Regardless of one’s motivation, there’s a whole lot more to the M&A story than merely succession planning.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $15 billion in AUM.