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As owners of financial planning firms approach retirement, some may decide to sell to an external buyer, while others may plan for an internal succession. Sometimes, this succession plan can include the owner's child, providing an opportunity to keep the business in the family. At the same time, the business strategies that worked for the original owner might not be suitable or as successful for their successor, which can force the 2nd-generation owner to take a different path to ensure the firm thrives into the future.

In this guest post, Jason Siperstein, President and Wealth Advisor at Eliot Rose Wealth Management, outlines the range of (often unsuccessful) marketing tactics he tried in an effort to boost business after taking over his father's investment management firm, and the pivot he made to provide comprehensive financial planning services to a niche clientele that has ultimately turned around the fortunes of his business for the better.

Gary Siperstein, Jason's father, had built a successful investment management firm exclusively focused on managing portfolios of small-cap value stocks. But as market trends changed (with the performance of this asset class falling behind large-cap stocks during the 2010s) and clients entered retirement (often consolidating their investment management with 1 advisor), Eliot Rose started losing clients, eventually becoming unprofitable in 2016, the year Jason became president of the firm. To stem the outflow of clients, the firm tried a number of marketing strategies – from creating an off-brand Facebook page, to using print advertisements, and to buying paid referral services – most of which were unsuccessful. With revenue in a bad place, Jason found ways to cut costs liberally in order to stay afloat, saving the company approximately $200,000 annually by streamlining expenses from technology to salaries (including his own and that of his firm's 2 long-time employees).

Jason's next move was to shift the firm away from pure investment management by incorporating comprehensive financial planning for his clients. The firm first implemented an $85/month program for young professionals; this brought in new clients but did not generate revenue commensurate with the time required to service them. Jason then pivoted to offering financial planning services for those nearing or entering retirement, which required the firm to retrain its staff on the ins and outs of retirement planning. This move was more successful, and as prospects started to come in, the firm refined their ideal target client further to individuals within 12 months of retirement, who wanted planning and investment management, and had investible assets greater than $1 million.

Like other firms, the onset of the pandemic led the Rhode Island-based firm to shift to virtual operations, which opened the door to clients from other parts of the country, finding their way through client referrals and internet searches, and even from national publications featuring Jason's content. With more confidence, the firm increased its planning fee incrementally over a 3-year period from $1,500 to $5,400. The firm is now getting more clients that fit their niche (with 1-2 'ideal' prospects each month) and has increased its AUM from $55 million in 2016 to $115 million today.

Ultimately, the key point is that it is sometimes necessary to reinvent a business in order to thrive as time goes by. In Jason's case, this meant being open to experimenting and making changes, staying tenacious and holding on to his sense of humor throughout challenging times, finding the right niche, and focusing on serving his firm's ideal target client, which has turned a once-struggling practice into a thriving business!

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One of the biggest challenges for small, independent RIA firms is that they are self-reliant with respect to designing, choosing, and implementing the systems, technology, and processes that they use. Some firm owners relish the responsibilities of building and maintaining a firm from the ground up, but others – who may be happier with simply advising and building relationships with clients – might find it more appealing to merge with or sell to a larger firm that has the resources to handle the back- and middle-office support and leave the advisor to the work that they enjoy most. However, advisors who choose to merge or sell may end up regretting the decision if they find themselves tasked with new and unexpected responsibilities, mismatched with the new firm’s culture, or missing the freedom that they had enjoyed as an independent operator.

In this guest post, industry commentator and Inside Information author Bob Veres relates the stories of advisors who relinquished their independence – often for sensible reasons, such as succession planning or to solve challenges of firm growth and complexity – and what they learned about the experience that they wished they had known beforehand (that other would-be sellers may want to know before they face a similar decision).

The first major lesson about selling an advisory firm is the sheer amount of work involved in doing so, from finding (and doing due diligence on) potential buyers to migrating systems and technologies over to the new firm. For a firm owner who expects the sale to make their life simpler, the enormous project of transitioning can often be the opposite of what they expect.

Second, once the merger is complete, firm owners often discover that the culture of the new firm clashes with their expectations. Firms seeking acquisitions may talk up their values prior to the sale, but the reality is that at a firm that is rapidly acquiring other businesses – particularly when funded by private equity ownership – the focus is often on the growth of assets and profitability, no matter what the core values are purported to be. And when the acquiring firm is much larger than the selling firm, the much more rigid structure of the larger firm (particularly relating to compliance and personnel management) will almost inevitably conflict with a previously independent firm owner who is used to making their own decisions.

The third major lesson is that RIAs that acquire independent advisory firms are sometimes acquired themselves by still larger firms. Independent firm owners who have taken pains to ensure that their acquisition partner is a good fit in terms of culture, processes, and services have gone on to see their work being undone when the partner is subsequently eaten up by a bigger firm with little interest in preserving the original independent firm owner’s vision.

Ultimately, many of these issues are simply tradeoffs inherent in selling an advisory firm, which necessarily involves the owner giving up some (or all of) the control that they're accustomed to. However, for advisors who are considering a sale – which, despite the potential pitfalls, still can be an important part of the journey for succession planning and growing the firm beyond an individual advisor or owner – the key point is that the reality of going through an acquisition often doesn't match up with the owner’s expectations. And while it's common for media to focus on the success stories, it can be just as helpful to hear about advisors' experiences when their acquisitions don't go just as planned, so future advisors can learn from the benefit of hindsight!

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