Financial Advisor Practice Acquisition: 8 Lessons We Learned

by James Bode James Bode | December 19, 2023

Here at Beck Bode, we have grown our firm organically (meaning one client at a time) and through acquisition. While buying other financial practices, we have learned a few lessons the hard way and also by developing a thoughtful and intentional process. 

We thought we’d share with you some of the real-world wisdom we have gained in the school of hard knocks. You can read a hundred books about business, but nothing beats learning it through experience. 

Whether you are a buyer or a seller, we hope you glean some valuable tips here.


Acquisition Lesson One: Involve Your Attorney ASAP

Are you in the market to buy a practice or to sell one? Either way, the moment things start getting serious, you need to get your attorney involved in the conversation. 

“Serious” means the point at which each party has agreed to stop “window shopping” and is ready to negotiate only with the person with whom they are interested in pursuing a deal. Getting your attorney involved as soon as possible will protect your relationship with the seller. 

In our world, negotiations are handled by attorneys. Strengthening your relationship with your attorney in advance of the buy/sell process is extremely important.

 Consequently, finding the attorney that’s right for you is something you should take care of well in advance. Looking for an attorney when you’re ready to buy or sell will not give you the time you need to establish a solid working relationship with that person. 

Your attorney should know everything about you and your business: They should know what you are trying to accomplish, how this transaction fits into your overall vision, and what you are looking to get out of it. They need to know what is important to you, what you are willing to negotiate, and what is non-negotiable. Your attorney needs to know where they can bend or push back. 

Essentially you want the attorney to truly represent you and your interests. If you don’t have a deep enough relationship with your attorney, they may view the purchase/sale as just another transaction as opposed to the transfer of your life’s work to a well-suited entity.

Acquisition Lesson Two: Prioritize the People Behind the Scenes

As buyers, we are very interested in the staff of the company that we’re buying, because the support staff are the people who are going to make our investment work. 

Making sure that the staff are excited about continuing to service the clients — under new ownership — is critical to the success of the deal. For us, the staff is just as important as the owner or lead advisor(s). We always name the staff as part of the transaction and develop employment agreements for them. 

When we look to acquire a business, we look at the profiles of the staff to determine if they are a good fit for our culture. We want to get to know the staff and include them in our process so that they are motivated to stay. By understanding the nature of their relationships with clients we can support the consistency of those relationships. 

The same goes for the seller. For the deal to be successful, the seller needs to stay on for some time and transition client relationships to us. We like to define (within a carefully crafted employment agreement) the seller’s obligation to stay, their compensation, role, and responsibilities, and however else they can assist us with a smooth transfer of their clients to our newly merged companies.


Acquisition Lesson Three: Understand the Seller’s Primary Role Within the Company

Every owner brings a different strength to a company. You must know what the seller’s primary role is within the firm you’re buying so that you can be realistic about where you will need to enhance their talents or shore up gaps. 

For example, some owners are purely relationship people. They live and die for the relationship with their clients, and if you are buying from an owner like that, then you know that you will want that owner around for a while to transition those relationships successfully. It may take clients some time to be able to trust another person. 

Another owner may be less relationship-driven and more focused on strategy. Clients may assign a high value to that person’s guidance regarding the direction in their portfolio.  This is valuable information for the buyer that you can use this information to your benefit.


Acquisition Lesson Four: Hire in Advance to Facilitate a Smooth Transition

Any time you buy a company, you are adding extra business. You need to be staffed up to support this extra layer of business. 

Given that we are in the service business and given that clients often fear that when their financial firm is purchased there will be a downward trend in service, it’s important to staff up so that you can demonstrate that you are ready to support the new firm. This means hiring in advance of the purchase, rather than scrambling to fill roles. 

This is a tough lesson to learn because it’s costly in time, money, and training resources to bring new people on board. On the flip side, it’s more costly to have dissatisfied clients. 

Also, adding a company to yours requires people to assist with the integration of two firms, or to enhance the services you are already providing. 

Sometimes existing employees can stretch to meet a short-term need, and sometimes you simply need more headcount to handle the volume of work. It could be that you need an additional service person, another paraplanner, or another trader. 

Ultimately, you want to delight clients with your service experience, rather than have them feel that their relationship with you is suffering because of your company’s growth.

For anyone who’s in the market to sell a practice, I want to point out that it’s important to not be understaffed when you come into a transaction because that means that the seller is going to have to make an additional investment in your practice, and that has the potential to affect the quality of offer you receive.


Acquisition Lesson Five: Have a Solid Financial Strategy in Place

When you’re looking to buy a practice, you want to be prepared for a deal by establishing a positive relationship with a bank and having your financing figured out well in advance. 

Once you spot an acquisition opportunity, it’s too late to be thinking about funding. You also want to have multiple options available to you so that you can make your offers as competitive as possible. 

Consider the contingencies you may want to write into your offer. 

For example, when is the seller going to get their money? Is there going to be a holdback on a certain percentage of the assets? Is there a contingency that a percentage of clients must stay for a certain period for the seller to be paid a held-back amount? Where will the funds be held in escrow? 

In highly competitive markets (like the ones we are experiencing today in the financial industry), you have to go in with your best offer or you may not get the deal.


Acquisition Lesson Six: Decide Whether to Maintain, Renegotiate, or Sell the Existing Location  

You know the old saying in real estate — location, location, location! As you are gearing up to buy another practice, ask yourself: Do you need another office location?  

Every deal we have engaged in has come with an office that has a lease. We're living in a different day and age today when many clients are getting used to being serviced remotely. It’s not every single client that will choose Zoom over a live encounter, but there is a contingent of clients that will probably never walk into a physical office again simply because it's that easy to jump on a video call. 

Taking on a new lease is probably inevitable, at least for the short term, and yet it’s important to point out that every lease represents direct overhead that cuts into your profitability. If you are in a position where you need to renegotiate a lease, my advice is to involve an expert — a real estate agent — rather than trying to figure it out between buyer and seller. 

There is another important aspect tied to location and that is: Are you willing and able to service the geographic location where the seller has built their firm? 

While many people are comfortable jumping on a Zoom call, there are still many others who would like to meet in person. How convenient or inconvenient is it for you to service this location? Are the biggest clients located here or elsewhere? Think about it.


Acquisition Lesson Seven: Establish Implementation and Communication Structures

Typically when we hear the word merger, it brings to mind massive companies buying other massive companies and having teams of people dedicated to integration and all the things that go with it, from streamlining operations to culture.

Well, even when you are buying a relatively small company you need to think about how you will implement the union of the two firms because the acquisition is just the first step. 

The success of the deal will become apparent a few years into the deal when you can look back and see how many clients stayed on, how much you have grown the practice, and how well the two teams have meshed with each other. Every aspect of your firm will be affected — from technology to marketing to client service, and on and on. 

For this reason, it’s critical to have an implementation plan for how you will integrate the operations of the two firms, and how you will communicate all of this to your clients. 


Acquisition Lesson Eight: Draw up Playbooks for Short-Term and Long-Term Success

My concluding piece of advice on all of this is simple: Make a plan. 

Assign the right people to own the plan and execute it. Check it periodically and adjust as necessary. And if you have any questions, don’t hesitate to reach out to us. 

Good luck!

James Bode is Managing Partner at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

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