In recent years, there has been a growing interest in both high-profile acquisitions of advisory firms, and a more general “urge to merge” as the increasing costs of running an advisory firm drive more to seek scale by banding together. Yet while the industry discussion often goes to the favorable results of the biggest mergers with the greatest success, the reality across most industries is that anywhere from 70% to 90% of mergers and acquisitions, and there’s little reason to imagine that advisory firms would be any different… suggesting that at least some of the vaunted benefits of large ensemble practices may be distorted by a significant survivorship bias.
Seeking to explore this issue further, a new industry white paper on “Best Practices in Investment Advisory Partnerships” has delved into what makes advisory firm partnerships work, and what causes them to fail… cultivated from both the experiences of the authors (who themselves were advisory firm owners who went through a problematic merger) and interviews with dozens of advisory firm partners of businesses both large and small.
What emerges from this new exploration of advisory firm partnerships is the idea that in more ways than a few, an advisory firm is like a marriage, where deep trust and a mutual commitment to the success of the relationship is crucial to navigate the inevitable conflicts that will arise over time, and that while every individual and partnership is different to some extent, the triggers of partnership problems are far more consistent than most might expect.
