How to acquire a retirement plan advisory business

Create a profile of your ideal advisory prospect

What are you looking for in a seller? Having specific traits in mind is crucial to identifying potential suitors and increasing the chances of a good fit.

• How many clients are you willing and able to take on? Which types of clients?
• Do you want to grow your staff and office space as part of the deal?
• Are there specific services you offer that a seller may not, creating an opportunity for new revenue streams? 
• Is there a geographical area you want to access?
• Do you want the incumbent financial professional to stay involved postacquisition?

To help you stay organized, document a transition and integration plan, and include answers to the questions above. It’ll be a great resource to help you stay focused throughout the process.

You’ll find that this is a competitive market, with reports showing as high as a 75:1 buyer-to-seller ratio.¹ That said, don’t take a deal just because it’s available—finding the right seller will be worth it in the long term, even if it takes more time initially. And while the market is competitive, it’s on the verge of change, with over 14,000 financial professionals expected to retire and planning to sell in the next 10 years, and another 26,000 who are unsure of their succession plans.²

Over 14,000 financial advisors retiring soon plan to sell their business externally

Success plans for financial advisors retiring within 10 years

Source: “U.S. Advisor Metrics 2020: Dimensions of Diversity and Inclusion,” Cerulli Associates, 2020.

Assemble your A Team

As you’re preparing to search for a seller, consider pulling together a team of experts to guide you. There are a few key areas in which expertise could help you get exactly what you want.

Legal—A corporate lawyer can help you structure and negotiate the deal and protect you after the deal is done. Choose a lawyer who’s experienced in merger-and-acquisition work and has strong references.

Tax accounting—A tax accountant can dig into the company’s financial history to identify abnormalities or concerning trends. An accountant can also help envision what the combined business looks like.

Valuation—A valuation expert will help remove the emotions of both parties and objectively assess what would constitute a fair deal.

What you should know when you purchase a business

When you’re doing your due diligence, there’s a few items you should investigate, as they can have an outsize impact on the deal. 

Cultural fit

Finding a strong cultural fit is the most important factor to sellers—personality and investment and planning philosophies.² Try to address this early in the process, explaining what you value and how you run your business, and ask the same of the seller.

The client base

You should also have a firm understanding of the client base. Stay away from clients with failing businesses and unengaged participants. Avoid practices with high asset and revenue concentration among a handful of clients—if they end up leaving, the financials of the deal can disintegrate quickly.

The clients you’re looking to acquire come with risk. As part of your business planning for the acquisition, run some retention scenarios to understand the financial impact and likelihood of key client departures. Make sure you know how many of those new clients you could afford to lose and then decide how likely that is to happen.

Other important considerations

Client records—Make sure they’re organized and easy to access and that you have a plan for their seamless transition—critical to retaining your new clients.

Real estate—If you’re getting office space as part of the deal, make sure you’re happy with the terms. 

Technology—Are you taking on the seller’s older technology or transitioning that technology to yours? Make sure you factor any needed updates into the overall cost.

And don’t forget about your existing clients. You have a fiduciary duty to put your clients’ best interests first, so throughout the acquisition process, continue to maintain your level of service for existing clients. After all, they chose you to help manage their retirement plans. 

Don’t rush the negotiation process

Take your time. Buying an advisory firm can take a few years from initial planning to fully integrating your new clients. If you see red flags, address them immediately—ignoring even small details may cost you in the long run. And if they’re concerning enough, be prepared to walk away from the deal.

Don’t overpay. Only agree to a deal that you think is fair. This is a substantial decision and one that will affect your business and your personal finances. 

Communicate early and often

Once you’ve decided to go ahead with the deal, it’s an exciting time for you and your team! But recognize that the seller’s clients are going to be skeptical. From the beginning, communicate candidly and openly, educating your future clients about why you’re buying another business and how they’ll benefit. Be personal—consider physically writing, or at least personally signing, your messages. Giving your new clients a glimpse of what you can offer their retirement plan program will help maximize retention and customer satisfaction.

Preparation is key when you want to acquire a retirement plan advisory business

Have a plan when you start this process—it’s critical to staying organized and disciplined. Know what you want, and be willing to walk away from a deal that doesn’t deliver on your needs. Be critical of all the details, including cultural alignment, and know what you’re buying. And remember the importance of client retention—be transparent, genuine, and valuable. Your careful preparation and attention to detail will go a long way in helping you maximize retention once the final contract is signed.

1 “Leveraging the FPT Open-Market Advantage,” FP Transitions, 2/23/21. 2 “U.S. Advisor Metrics 2020: Dimensions of Diversity and Inclusion,” Cerulli Associates, 2020.