I sold my RIA — here's what you can learn from my merger

With apologies to the memory of David Bowie, the song "Changes" is what often comes to mind as I reflect on the merger of my independent advisory firm with a large RIA early last year. 

In retrospect, I feel more and more certain that it was the right thing for me, for my team and, most of all, for my clients. But of course, there were many transitions along the way as I moved from being a solo practitioner to being a part of a much larger team.  

When I started my independent advisory firm, Empyrion Wealth Management, in 2002, I was driven by the desire to do what was best for my clients — period. Like others who were staking out a space in the fee-only landscape at that time, I felt compelled to leave the commission-driven, wirehouse environment because of the conviction that as long as I had to "close sales" in order to generate my income, I would never be truly free to advise clients dispassionately and without regard to what was in it for me. I knew in my heart that fee-based advising put me on the same side of the table as my clients; if I did well for them, things would work out for me.

In the ensuing years, I was fortunate to build a solid, loyal clientele. I was blessed to find mentors and a community of like-minded colleagues. I've been able to give back to younger advisors. I've had the opportunity to write a best-selling book and speak at industry conferences. It has truly been a busy, wonderful, supremely meaningful ride.

But there comes a time in the career of every founder when one must look beyond the day-to-day affairs of the business, and even beyond the typical "five-year plan" horizon. Especially as a woman professional and a single parent, I realized several years ago that I needed a continuity plan for the approaching day when I would want and need to begin spending time on other pursuits. And I needed to know that if I got hit by a bus, someone would be there to take care of my clients. 

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In our industry, it is typically advisable to begin the succession process five years prior to the intended transition date. And so, I started looking around. This was the first important transition that started all the others: Moving from a mindset of "this company will always be mine" to one of "I need to find a partner who can help me maintain continuity."

Many transitions, one mantra

Several matters were paramount for me. First, I was adamant that any prospective partner I considered would be committed to providing clients with the same level of personalized care that I had trained them to expect. I also resolved to do everything possible to ensure that the team I had built would be treated well and not ground up in the gears of some corporate machine. 

And of course, I wanted to obtain a competitive price for my business — one that fairly recognized the value of my practice. Which brings me to my second major transition: Moving from thinking of my business as "my baby" to thinking of it as an asset that had value. Any agreement I made had to reflect an accurate assessment of that value. 

In all these considerations, my mantra was the same one I learned years ago from my dad and one which has guided my approach to my business since its founding: "Never lead with money; lead with passion."

I would encourage anyone considering a merger to spend serious time surveying the industry landscape. I had the advantage of working with an advisor who was familiar with our industry and who had helped other firms negotiate successful deals. I can't emphasize this enough: Your CPA and your attorney are there to keep you out of taxation and liability ditches, but an "advisor's advisor" who is experienced in the valuation and sale or merger of firms like yours is essential in making an agreement that is best for you and all other interested parties. That's why it's so important to have a guide who knows the terrain and the kinds of considerations that are important to independent advisors and their potential merger partners. You need to understand the company's culture and business priorities before the agreement is signed, and the best way to do that is to have a well-informed but disinterested party in your corner.

'Marrying up'

I decided early that if I was going to "get married," I was going to marry up; to form my alliance with a partner that could offer my clients services, conveniences and other benefits that they weren't presently receiving. I also knew that Empyrion needed to be a value-add for the relationship in order for it to be a win-win. And this, building on the transitions already underway, involved yet another: I needed to learn how to see my firm through a potential merger partner's eyes. 

This can be the toughest transition of all. We all build our businesses in ways that are bound to our personalities, our strengths and the ways we like to do business. There's just no way that another entity is going to see all that through exactly the same lens. So transitioning to a place where you can distance yourself from the firm you've built sufficiently to understand the other party's viewpoint is necessary if you want to make this "new marriage" work.

Not long after we started looking, about six firms emerged as serious candidates. Over time, some fell away as philosophical differences or incompatible business views came into play. I narrowed it down to three finalists before concluding my agreement. As it turned out, I was attracted to the firm that would ultimately become my merger partner — Mercer Global Advisors — by their internal culture, which I found to be compatible with ours.

The right questions

It should probably go without saying — but I'll say it anyway — that the process of evaluating and consummating a merger will take you on a learning transition like you've never before experienced. Here are a few questions I wrestled with as I made the passage:

• Where do I want to end up when this transaction is concluded? Do I want a major equity position with the new firm, or would I rather have less equity and instead maximize my after-tax proceeds?

•  And speaking of taxes, what are the implications of the agreement? How can I minimize my tax consequences? If I'm a Subchapter-S corporation, should I consider re-forming as a C corporation and forming a charitable remainder unitrust to receive the shares? This would all but eliminate capital gains and also create a lifetime income stream for the grantor and their beneficiaries. Will the merger partner allow this?

• What is the structure for the client retention bonus? A year? Two? Three? 

• If the market makes a big move before the deal is finalized, how would that affect the purchase price?

• If the potential partner is asking me to take a majority of the purchase price in the form of stock, why? Are they trying to conserve cash to do five more deals this year? If so, what does that say about their ability to focus on my firm and the needs of its clients?

• When I visit a prospective partner's offices, what kind of feeling do I get? On one site visit I experienced something akin to PTSD because it felt so much like the wirehouse I left years ago (needless to say, I didn't choose that firm).

• Is the potential partner experienced in communicating with the clients of merging firms? A huge plus for Mercer Advisors is that we clearly weren't their "beta test" — they had a transparent strategy for transition communications that was deeply beneficial to my clients, resulting in a 100% transfer of my clients to our new arrangement.

So, after moving through all these changes and transitions, was it worth it? Absolutely. I now have the ability to offer my clients services, conveniences and opportunities that I never could have before, and my office team feels valued, confident and, best of all, part of a formidable team of professionals who can offer high-caliber services to our clients. 
By accepting the need for the transitions and by moving through them thoughtfully and with the right professional assistance, I believe we came out on the other end of the process stronger, more capable and better prepared for the future. Ultimately, that is what matters most to our clients — and to us.