Success vs. Failure Part 2: 4 Keys to Success When Purchasing an RIA Firm

Success vs. Failure Part 2: 4 Keys to Success When Purchasing an RIA Firm - Elevate CPA Group

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

Part 2 of 2

Registered investment advisor (RIA) firms looking to grow often choose to purchase another firm. But this is rarely a straightforward process. All too often, we see investment advisory businesses rush into a deal only to regret it later. But the good news is there are 4 keys to success you can use to set yourself—and your RIA firm—up for a successful transition.

In Part 2 of this blog post series, based on a podcast we produced with leading SAAS business intelligence platform Truelytics, I’ll take you through these key tips. You can read Part 1 here.

Here are our 4 keys to success when purchasing an investment advisory business:

1. Start with a Strategy

Having a strategy in place—before you begin seeking an RIA firm to purchase—keeps you from reactively responding to the next opportunity that comes your way. At the very least, your purchasing strategy should consider what constitutes a good fit for your firm, both financially and culturally.

In our experience, RIA firms who successfully join forces are compatible across these five areas:

  • Culture
  • Investment philosophy
  • Client demographics
  • Technology
  • Business vision

2. Find Partners who Complement You

To accurately assess an RIA firm’s culture, you must take a close look at its partners (unless, of course, you are purchasing the firm only for its client base). Ideally, their business philosophy and personalities should complement yours. Finding this out requires ample due diligence on your part.

To start, consider talking to employees to get a feel for how the partners treat them as well as clients. Pay attention to how their representatives speak to clients on the phone and what they say about them behind their backs. Then, ask yourself the tough question: Will I truly enjoy working with these people?

3. Make Sure Your Business Practices are Aligned

The ideal alignment will depend on your strategy—that is, the reason you are purchasing an RIA firm. Are you looking to tap into a new client demographic, or do you wish to offer new products?

It’s also critical to look at how the RIA firm does business. Has it experienced regulatory issues? Has it been party to lawsuits, or is there pending litigation?

4. Develop an Implementation Plan

For a smooth transition to occur after the deal has been signed, a detailed implementation plan must be in place. This plan should be developed early in the process. At a minimum, it should lay out the terms of the transition, the role of the selling RIA firm’s owner, and the individual in charge of the transition.

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 investment advisory businesses 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.