Fidelity Investments wants to offers registered investment advisors tools to expand through acquisitions.
Fidelity Institutional Wealth Services, the division of the firm that works with registered investment advisors, has published two white papers and launched a program to facilitate mergers and acquisitions between firms.
The white papers, Your Guide to Expansion and Expanding Your Practice: Are You Ready? are accompanied by detailed questionnaires, case studies and best-practice guidelines.
David Canter, executive vice president, head of Practice Management & Consulting for Fidelity Institutional Wealth Services
“It’s a practice management offering,” said David Canter, executive vice president and head of practice management and consulting for Fidelity Institutional Wealth Services. “Advisors are growing organically too, but many are also growing through acquisition. As we look at the economy, that’s one strategy advisors are pursuing—and there’s a succession-planning element to it too. So we’re helping advisors diagnose when they should grow and then advising them on how to move forward.”
Independent practices have grown 12.1% in value annually for the past five years, according to data from FP Transitions. Average gross revenue multiple (GRM) paid ranged from a low of .70, to a high of 3.20, with an average multiple of 2.34 for businesses with recurring revenue. Demand is high, with 43 buyers to every one seller.
When it comes to acquiring another firm, Canter says less haste translates into a faster, smoother integration. “The first thing is that firms should look inwardly before they look outwardly,” he says. “Does it have a well-defined business strategy, philosophy and culture? Does it have a scalable business infrastructure capable of taking on more advisors and support staff? Does it have the right human resources capability to help with that? We can then help organize all that and shepherd the RIA through the next steps.”
The characteristics of the target firm hopefully map to the strategies of the acquiring firm: Either it is consistent with current service or it plays in a space the acquirer sees its business model moving. Geographical coverage might be another element, Canter says.
Firms looking to sell—Canter says he hasn’t encountered a “hostile” takeover between RIAs—should examine their own strategies first, too. “It could be the most important decision the business’s owners will make, so they need to take appropriate care and conduct thoughtful due diligence as if they were the acquirer.”
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