Success vs. Failure Part 1: Pitfalls to Avoid When Purchasing an RIA Firm

Success vs. Failure Part 1: Pitfalls to Avoid When Purchasing an RIA Firm - Elevate CPA Group

Success vs. Failure Series: Why Some RIA Purchases Fail and Others Flourish

Part 1 of 2

The sale or purchase of a registered investment advisor (RIA) firm can be complicated. Some transactions seem like they were meant to be, while others fall apart in no time. So, what gives? Could there be a secret ingredient that makes selling or purchasing an RIA firm successful?

Although I wish it were that easy, the answer is no. The success or failure of an RIA firm purchase or sale depends on a number of factors. In this blog post series, based on a podcast we recently produced with the leading SAAS business intelligence platform Truelytics. I’ll discuss the ins and outs of successful—and not-so-successful—deals involving investment advisory businesses.

In this post (Part 1), I’ll share pitfalls to avoid, so you can spot red flags before you get too far along in the process.

Here are 5 pitfalls to avoid when purchasing an RIA firm:

1. No Shared Vision

All too often, firms purchase another firm out of growth ambitions alone. Buying for this reason alone may not result in your desired outcome. For a deal to be successful, the two RIA firms involved must be compatible. This could mean they have commonalities in the type of clients they serve or products they offer, or it could mean they share similar business values. Most important, the two firms must have a shared vision for the future.

2. Lack of Open Communication Throughout the Process

Don’t be satisfied with the dog and pony show. If you’re entering into a deal with another RIA firm, it’s important to have tough conversations that get to the heart of each owner’s needs and expectations. Build trust before signing on the dotted line, so you can feel confident about what you’re getting into.

3. The Seller Won’t Let Go

If you’re purchasing an RIA firm and the owner insists on retaining control of certain aspects of the business, this could be a red flag. In order for the deal to work—for the two firms to be compatible—the seller needs to accept the buyer will be the one in charge.

4. Poor Client Communication

One of the risks associated with purchasing an RIA firm is that its clients will leave after the deal goes through. To prevent this, it’s important to keep clients apprised of the transition. Sending an initial announcement followed by weekly updates is a good start. Be sure to give clients plenty of notice and support for any administrative changes. If the seller hasn’t or isn’t willing to keep clients in the loop, these clients are likely to feel ignored—and ready to jump ship.

5. Lack of Strategic Focus

It’s bad enough when one firm doesn’t know where it’s going. Adding another firm to the mix could make the situation even worse. This is why it’s critical to have a strategic meeting between both RIA firms early in the process. Make sure everyone is on the same page—and this goes for owners within the same firm, too. If agreeing on a focus becomes a challenge, it might be time to walk away.

Get Support for a Successful Transaction

If you’re considering purchasing or selling an RIA firm, Elevate CPA Group can help. As financial services industry specialists, we assist RIA firms with everything from cash flow planning and projections to providing outsourced tax services.

Our CPAs are available to guide you through the merger or acquisition process, steering you clear of pitfalls and toward success. Contact us today.