The normal method for growing a practice is by acquiring new clients one at a time. Although this is a valid and sound approach to growth, it’s also a generally slow approach. For advisors who want to grow quickly, acquisitions are the answer. There are many reasons why acquisitions are a great way to grow your financial advisor practice. Here are just a few.
Whether purchasing a book of business or an entire practice, acquisitions let you rapidly achieve new economies of scale in considerably less time than building one client at a time. This is especially true if you acquire a book of business with substantial recurring income and AUM. Scale lets you invest in key staff and infrastructure so you can run more efficiently (and generally more profitably) than as a one-advisor shop.
Acquisitions let you quickly increase your market share in a specific region and/or client segment. This is especially true if you are diligent about acquiring a practice that serves the same or similar type of client as your current practice. Increased market share helps stabilize your practice and allows you to better insulate your practice to natural client attrition.
Acquisitions allow you to quickly increase your income and cash flow – again, as long as the business is profitable and has a good percentage of recurring revenue. That income will increase your purchasing power over time. Of course, the cost of acquisition needs to be considered, even if only as a temporary expense.
An acquisition increases the overall value of your practice. Many factors influence value, including client composition, AUM, and revenue. As a result, expanding your client base and AUM can greatly help increase the overall value of your practice.
Of course, to realize a profitable outcome, advisors must secure acquisitions that have passed due diligence and financial scrutiny. It’s also important to ensure a good fit and to establish a working relationship with the seller and their staff in order to reduce client attrition. Still, advisors who do the proper leg work quickly find that acquisitions are one of the best paths toward profitable growth, and soon become eager to do more acquisitions as a result.