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Transforming wealth management with the right M&A deal

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Financial advisors’ choices about capital infusions into their practices show “how this industry needs to evolve and mature,” Merchant Credit Partners Managing Partner Rick D'Amico says in an episode of Financial Planning’s Invest Podcast.

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As a strategic capital provider to wealth management firms amid an expansion of the potential suitors eager to invest in RIAs and independent practices, D’Amico’s New York-based team is helping increasingly knowledgeable advisors make such decisions. M&A transactions across wealth management have set records in terms of volume in each of the past six years.

Speaking months before the coronavirus spread across the U.S. and sent the global economy into a downturn, D’Amico predicted that the inevitable end of the bull market wouldn’t alter the longer term appeal of wealth management firms’ growth and recurring cash flow. And although the economy is slashing earnings across the industry, the coronavirus hasn’t shut off the M&A spigot.

Even before the economy sharpened the focus on all aspects of the business, D’Amico praised advisors for being much savvier dealmakers than some may think. Still, he says that some deals stem from cold calls with eager offers of large checks. In the future, advisors “will continue to get smarter about picking them apart and understanding” the sources of capital, D’Amico says.

Rick D'Amico is a managing partner with New York-based Merchant Credit Partners.

“One thing I always tell advisors is, think about what it can do to you before you think about what it can do for you,” D’Amico says. “Everybody that’s trying to give you a loan or invest in your company or buy your practice is going to think about what it can do for you. And they’re going to tell you. But think about what you’re risking: It’s your life’s work, it’s your clients that you care about. Make sure that, if you’re selling your business, it’s going into the right platform and cultural fit. Make sure, if you take a loan on, you understand the covenants, you understand how your lender’s going to act if there’s stress in the market, because taking on capital partners comes with risk. It’s not just upside.”