Technology + Acquisition: How The Right Technology Impacts Acquiring a Financial Advisory Firm

Twenty years ago, technology was just emerging in the advisory space – and a lot has changed since then.

The 2019 T3 conference in Dallas, Texas showed just how far technology has come in this industry. It’s everywhere, and it’s the future.

Scaling my practice was one of the things I needed to solve for, and technology has become a solution. I’ve spent decades as an advisor, growing my firm mainly through acquisition, and I’ve learned how the right technology makes acquiring a financial advisory firm easier.

If you’re considering mergers and acquisitions (M&A) as part of your advisory growth strategy, it’s important to understand that the M&A space is hotter than ever. Consolidation of advisory practices will accelerate over the next ten years. Qualified buyers outweigh sellers by a ratio of nearly 10:1, resulting in a hyper-competitive environment that requires an edge.

Steps to Acquiring a Financial Advisory Firm

Since most advisors have never done an acquisition, allow me to share a little about the logistics.

Before acquiring a practice, you’ll have to position your own firm. That’s going to require you to get your financials and staffing in order and to tie up any loose ends. Recognize that while many position themselves as “planners,” most sellers are mainly managing investment assets.  

For you to be a viable successor, you’ll need to be able to show the seller that you’re capable of managing their book of business. The best way to do so is to embrace a systematic method for modeling and rebalancing portfolios. Having procedures in place and following those procedures will go a long way toward instilling confidence in the seller.  

Next, if you’re not already a multi-custodian advisor, you’ll need to prepare for this.  Multi-custodian trade management is a challenge, and pulling the data in from the various sources and then making sure you are trading on the most recent information can only be accomplished through the latest technology.

Solutions to Hurdles when Acquiring a Financial Advisory Firm

A little more than ten years ago, after a great deal of research, I found a company called BlazePortfolio.  At the time, trade management systems were in their infancy, but BlazePortfolio had created a solution that was simple to understand and implement. It was a game changer for my practice.

We were able to create a building block approach to portfolio construction, which allowed us to align portfolios based on the size of the account as well as the measured risk preference of the client.  

We went from having no two accounts looking exactly the same to precision trading. This helped us in client meetings and in ongoing communications, as we were able to say with a high degree of certainty that our allocation to large cap was X percent.  

Now, let’s circle back to why this is important in the acquisition of a financial advisory practice.  

By leveraging the BlazePortfolio system, I was able to differentiate myself from other buyers because I was among the few that had a tech-driven solution that was better than the seller’s current approach.

Let me put that differently: I was able to show the sellers that, through technology, I could improve upon what they had been doing.

Think about that for a moment. In an overcrowded acquisition space, I gave the seller a reason to talk with me further. I also gave the seller a talking point to use with clients as a reason why I was a solid successor.

Sellers need to be able to see you continuing their business, as that’s how they’ll get paid out over time. By having systems that can be easily overlaid within the practice you acquire, you instill in the seller confidence that you can scale your practice to absorb theirs.  And in the end, to successfully acquire a practice, you must be able to scale yours.

*The author, Kristopher Behn, presented this at the T3 Advisor Conference on January 30th, 2019.

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