The potential for mergers and acquisitions is being raised by more financial advisors lately — and many are taking the leap. There were 54 completed RIA mergers and acquisitions last year, according to Schwab, with the average deal size approaching $50 million in AUM.

That doesn’t surprise me. Mergers and acquisitions can advance your business growth objectives as well as your own personal objectives. I hear from many advisors who are nearing the traditional retirement age and want to realize all or some of the value they’ve built in their firms and move to the next chapter in their lives. I also field questions from younger advisors seeking rapid growth, new capabilities and stronger management teams who wonder if an acquisition is the surest, smartest strategy to that growth.

Of course, any merger or acquisition requires careful navigation. I recently worked with my CEG Worldwide teammate Jon Stone — who has more than 25 years’ experience in venture capital, investment banking and corporate development — to compile a list of eight key M&A areas that advisors must consider to ensure a successful deal.


M&A is a tool for advancing your game plan. To build that game plan, you need to get a handle on your personal and professional objectives — and make sure they are aligned. Too often advisors fail to make a clear distinction: They treat their business as their life and private property. You need to determine how you want the business to fit into your life.

Ask yourself questions such as:

  • How does this business fit into my life?
  • Is there a gap between the current value of the business and what I need it to be worth to retire or move on?
  • What role do I want to play in this business going forward (shareholder, board member, rainmaker)? Is that role consistent with the corporate strategy?

When you align your personal and business objectives, you are more likely to create enterprise value — creating a transferable strategy instead of one based entirely on your presence behind the desk. Firms with enterprise value are much stronger M&A candidates.

You need to be clear on your firm’s growth path. Frankly, it’s best to pursue an organic growth strategy initially, through steps like new marketing programs, referral strategies or expanding geographically. It’s simply less risky.

But once you’ve successfully maximized organic strategies, it’s probably time to consider M&A.
With a clear growth strategy in place and documented, you’ll be better equipped to find the right buyer or seller. Your business will also be more appealing to other parties.

Any deal you consider also should fit your client base, with a service approach and investment philosophy that ensure the people you have served for years will be happy and remain with the firm.


You must be able to measure business value in a way that is meaningful. I prefer discounted cash flow for transactions involving small to medium-size private companies, like most financial advisory firms. This metric is highly targeted: It discounts projected future cash flows to the present using the cost of capital associated with the specific firm.

This stands in contrast to using, say, multiples — a method that lacks precision because it relies on comparisons to other companies that may not be similar to the firm in question. (This is particularly true with privately held companies, where the data required to make accurate comparisons is often not available.)

We recommend that sellers get a valuation done by a certified appraiser prior to engaging in a sale process. The ideal appraiser will use the discounted cash flow method, have significant industry experience, and produce a report that is transparent in its assumptions and methodologies so that the seller can fully understand valuation drivers and detractors and the path to increasing value.


Sellers should be ready to present an organized, disciplined and well-documented operation. This makes early preparation crucial to your ultimate success with M&A. Give yourself at least one year to prepare.

Engage outside experts in legal, tax, finance, accounting and compliance to review and update your documentation to ensure that your house is in order and prepared for due diligence. (Buyers, too, should identify go-to experts who can help with the due diligence process.)

Also make sure that you and your senior team are aligned. Equity incentives that link rewards to individual contributions that increase valuation can have a powerful retention effect, and can help ensure that your team stays engaged with the transaction to the end. 


Focus on all terms and outcomes, not just initial price. Transactions can (and should) be structured to create value through synergy, improve financial results, reduce risk and improve a firm’s competitive standing. This big-picture perspective will actually help you accurately assess how various aspects of the deal will ultimately affect value.

Many advisors include earnout provisions as part of their deals, which can bridge the gap between what the buyer offers and what the seller wants. By hitting certain performance goals after the deal closes, a seller gets the price he or she wants, and the buyer is happy to pay that price because of the strong performance results.


Done well, due diligence will help you confirm the investment thesis (or reject or change it), identify key risks, inform negotiators of all information important to deal structuring, and prepare the post-closing integration plan. Gather data even before the initial meeting with a potential buyer or seller, and continue to do it through the close of the deal.

You’ll want to appoint a strong leader from within the firm for the due diligence process — someone with robust project management skills — due to the enormous amount of information that will be collected and organized. This person must ensure the integrity and timeliness of results and make the required links back to valuation, negotiation and integration.


There are two frequently used formats for discussing terms: a negotiated transaction and an auction. In negotiated transactions, there is one buyer and one seller. Auctions have many potential buyers and require an intermediary like an investment banker to manage the process.

If you are buying a firm, you’ll prefer a negotiated transaction because it provides more flexibility in terms of price and structure. If you’re an in-demand seller, and price is your primary consideration, you’d lean toward an auction because the number of parties involved helps maximize the chance of a sale at the highest price possible.

Regardless of format, be diligent and aggressive in managing the negotiation process, but maintain an open and friendly relationship with your counterparty to increase the probability of a good outcome. The M&A process can be highly emotional, especially for principals who are selling a life’s work. A strong relationship between the principals is often what keeps a deal on track.


Your ability to ensure a positive outcome often depends on what happens during the first 90 days after the closing.

A well-managed integration starts the day after closing, is clearly communicated to all involved parties, and is quickly and efficiently executed. A poorly managed integration can lead to loss of key personnel, client attrition and loss of productivity as employees get distracted by anxiety about the future.

Ultimately, focusing on these issues will help ensure that you take the right M&A steps right out of the gate and execute successfully throughout the process. That’s true whether you are buying a firm to help fuel your growth or selling the practice that you have built into a huge success.

John J. Bowen Jr., a Financial Planning columnist, is founder and CEO of CEG Worldwide, a global training, research and consulting firm for advisors in San Martin, Calif.

Read more: