By Jacob Rouser, Digital Marketing Director
When wealth management firms are looking to grow, they have two broad strategies they can try to follow: organic or inorganic growth.
Organic growth, as the name implies, is homegrown. It relies on tactics like inbound content marketing to bring prospective clients to the company and grow by improving lead flow and close ratios for the leads that do come along.
Inorganic growth, on the other hand, is when a firm tries to build by looking outside of itself and its own capabilities. Enter mergers and acquisitions.
In wealth management, M&A is a booming inorganic growth strategy. While the American economy tumbled in 2020 from COVID-19 lockdowns, the stock market rose to all-time highs, and mergers and acquisitions soared along with it.
The last quarter of 2020 saw a 25% increase over the previous quarter in the year prior.
We’ll explore why it’s vital for wealth management institutions to understand the M&A market and how to fold M&A into an inorganic growth strategy.
Why M&A Matters for Wealth Management Companies
A rising and active M&A scene needs to be understood on two fronts: One side is the companies who are acquiring advisory firms — and the other side is the sellers (typically, advisors who own and run RIAs).
From a seller’s perspective, it’s always necessary to keep an open mind toward the possibility of acquisition either as a means of growth for the RIA or as an exit strategy for an owner.
According to one recent survey, the average age of an RIA owner is now below 50, and there are as many RIA owners over 60 as below 40. There are many opportunities for firms to sell as advisors look to transition from business owner to retirement.
From the perspective of wealth management firms looking to buy for growth, an understanding of other acquisitions in the market will better inform offers and pricing available to those RIA owners.
The Role of Digital Enablement in M&A
With so much M&A activity expected in 2021, RIA owners may have multiple options on the table for the next move to make for their business.
How does a firm stand out as the best choice? It all comes down to digital enablement.
The ability to offer a cohesive and integrated technology solution for everything from new account onboarding to ongoing financial planning and client reporting is a rarity in financial services.
But while a technology stack that’s quick to get up and running for an RIA firm joining an acquiring firm is a welcome benefit, the even more important consideration is how easy the acquiring firm can make it for the RIA to transition in the first place.
The Digital Solution for Advisor Transitions
In today’s remote-only workplaces, a full digital solution to transition a book of business is a must. In any acquisition, the key component is ensuring the process looks and feels painless to the end client — investors served by a firm.
Firms who can offer a completely digital experience for account transfers can offer a sped-up process that acquisition of assets faster and removes manual entry—and the related frustrations—from the acquisition process. Otherwise, these firms risk losing clients to other firms as their clients navigate the transition process.
From a seller’s perspective, a fully digital process makes the decision of which firm to join easy. From the buyer’s perspective, the digitization of a transition enables scale without the need to add headcount to onboard more advisory firms.
It’s a true win-win.
Want to learn more?
See how Skience helps with the all-new Advisor Transitions technology suite.
Learn more about how to optimize your firm’s technology stack.