WASHINGTON -- As advisors look to mergers and acquisitions to fuel growth strategies and succession plans, firms need to look beyond the nuts and bolts of the transaction and think strategically about how a combined firm will operate, experts said this week at the FSI's financial advisor summit.

"It is not over when you sign on the dotted line," says Mary Sterk, president of Sterk Financial Services in Dakota Dunes, S.D. "In many aspects the work is just beginning at that point in time."

No two practices are alike, says Sterk, who has acquired five practices -- and advisors looking to buy out another firm need to carefully weigh a variety of issues, from their capacity to support an expanded book of business to the potential cultural clashes that can arise when bringing on personnel from another practice.

"Each acquisition has its own nuances," she says. "You have to understand that every single one will be a little bit different and requires its own kind of care."


The most important success factor, say Sterk and others, is orchestrating the transaction so as to minimize client attrition.

"You want to make it an orderly transition of your business," says Brian Palmeri, a partner at the law firm Winget, Spadafora & Schwartzberg who specializes in securities litigation.

Sterk -- who has distilled her views on managing successful acquisitions in the book Buy It! -- tells advisors to work out a detailed communications strategy well ahead of closing the deal. She recommends a multi-pronged outreach to introduce the acquiring advisor to the clients and to ease their concerns about the transition.


Ideally, she says, a coordinated process would involve both the acquiring advisor and the advisor who is selling the practice. As a first step, the selling advisor could send notices to clients announcing the sale of the firm, taking the occasion to assure them that they'll be in good hands with the acquiring advisor, Sterk suggests. Then, within a couple weeks, the advisor taking over the practice would send out a batch of welcome kits, making a more personal introduction.

For advisors exiting the business entirely, she suggests throwing a retirement party, giving the acquiring advisor the chance to meet clients in a "non-sales situation."

Dean Harman, managing director of Harman Wealth Management in the Houston area, recommends holding joint meetings with clients as part of the transition process, if the selling advisor is amenable.


Harman, who has acquired six practices in his career, also notes the importance of communicating with clients up front about any significant operational changes they can expect.

In one acquisition, Harman's firm acquired a practice that advertised itself as a bargain shop, offering low fees as its primary selling point. Harman's practice, by contrast, bills itself as a "full-service" firm, offering what he describes as value-added services like recession indexing and robust economic analysis.

But that comes with a cost. After some debate within his firm, Harman put out the word to the new clients that their management fees would jump 50% -- while taking pains to explain all of the additional services they would receive with the new practice.

"By laying all of that [out]," Harman says, he received "no pushback from the clients at all."


Once a communication strategy is established, the principals at the expanding firm must turn their attention to logistical challenges that await, Sterk advises.

Evaluate the technology in place at the firm being acquired. If clients are used to accessing their accounts online and are served through a high-end CRM application, for instance, the acquiring firm should take a hard look at its own systems to determine whether it can deliver an experience of comparable satisfaction.

"Is the seller's technology better than yours? If it is, you're probably going to want to upgrade -- because you most definitely do not want to provide a downgraded technological experience for your clients," Sterk says.


Similarly, there are important personnel considerations. What is the appropriate staffing level to serve the growing book of business? Should those hires come externally, or are there advisors or support staff who could come over in the deal?

Bringing on staff from the acquired firm preserves standing relationships with the new clients, but Sterk warns acquiring firms to take note of any cultural issues -- ranging from dress code to flexible workplace policies -- that need to be addressed.

"You do need to do a capability boost prior to the sale or the transition, so one of the things you that you're going to need to decide is, if you're adding a whole bunch more clients to your book of business, do you need to add someone to your staff? Do you need to add a team member, or does that acquisition come with a seasoned team member who is used to working with those clients?" she says.

"It is somewhat unrealistic to say that you're going to add 200 to 300 households to your firm without in some way boosting out what your service capabilities are," she adds. "You have to be aware of either acquiring the staff or adding to your team."

Kenneth Corbin is a Financial Planning contributing writer in Washington.

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