CHARLOTTE, N.C. -- There is more to acquiring a firm than just figuring out how much money the chief executive is willing to accept to part ways with the business.
During a panel discussion at the NAPFA Evolution Now conference here on Wednesday, Scott McLeod, president of Brown Financial Advisory in Fairhope, Ala., shared with financial advisors his own missteps in acquisition deals.
There is an established culture in that business, he said. Youre buying a standalone company, and there is a culture inside that company, and its a very difficult thing to identity from the outside.
In addition to a firms internal culture, many communities have come to know financial planners who work with a small number of clients. One advisor found out after an acquisition that not all clients want to receive the same type of planning.
What Im learning is that Im going to pay a lot more attention to the actual practice of any of the firms that I would acquire, said Todd Bauerle, president and principal at Bauerle Financial in Deland, Fla., who was also a panelist.
After acquiring a firm in North Carolina, he noticed that his new clients not only didnt want to see his 13-page annual report documenting their finances but they didnt even want to meet about it.
I have to behave one way in North Carolina, and I behave the way I always have with my group, Bauerle said. Its harder work than I had thought about.
Here are five questions to ask to avoid missteps when acquiring another firm:
1. What will your new clients expect? Much like Bauerle finding out that his new clients didnt want to meet with him until after the deal had been inked, McLeod didnt get into the specifics of how the planning was being done during his first acquisition. I didnt ask all of the detail questions to understand fully what the advisors really call their service model, so when I got there I had to learn the culture of what the clients expected, he said. Coming from a small family office, McLeod said, When I have clients that dont want to come in, its new to me.
2. What is the culture of the firm? You have to work hard to get the deal done, but you have to work harder to integrate those new employees into your culture because they really didnt have a voice in it, and there is almost a certain amount of resentment, McLeod said.
3. How stable are your new clients families? Children are killing my clients, Baurele said. I have grandparents raising grandkids and paying for college, he said. Its the families that are sucking money out of these clients.
4. Is client money on the way out? As the advisor ages, so, too, does the client, said McLeod, who regrets not asking about the new clients ages. Another question I didnt ask: How fast is the money leaving because the client base is over 70? I wasnt asking what would happen in the next five years.
5. Is the firms technology outdated? One of McLeods biggest regrets is not taking a walk through the office of the firm he was about to acquire to check on the physical technology. After closing a deal just six months prior, he had to have a server inspected because it was making funny noises, he said. I was in for $3,000 to buy a new server and have it installed right off the bat, McLeod said.
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