Closing Thoughts

Using Acquisition As A Growth Strategy

Considerations for agency building

by Alex Reffett

Mr. Reffett is a principal and co-founder of East Paces Group, an Atlanta based wealth management firm. Visit

Sometimes the financial services industry can feel a bit “dog eat dog”— especially when it comes to acquisitions. Instead of relying solely on organic growth, many of the fastest-growing advisory firms simply choose to buy another business. And while the idea of acquiring another firm to achieve instant growth may be tempting, there are inherent risks in doing so.

For those thinking about such a move, the prospect of acquiring another practice, with its own client and employee rosters, can be daunting. There are a lot of risks and scenarios to keep in mind before diving in—the advice that advisors often give clients, about not making decisions too hastily, definitely applies. The following considerations can help advisors come to the decision that is best for them when thinking about potential acquisitions.

First Things First: Do Your Due Diligence

The first question you need to ask yourself before making any decision is, “Do we even have enough capacity as a firm to take on more clients?” If the answer is “no,” read no further; but for those who believe they do have the necessary capacity serve a new roster of clients, the next step to take is to start your due diligence.

Take a close look into the other firm’s business structure, economics, executive and management teams, employees, processes, client base, assets, risks and liabilities, etc. Possessing these insights is key to making a more well-informed decision because information, not emotion, should be the driving force when making these determinations.

Internal Assessment

Yes, you want to perform due diligence on the other practice, but without a better understanding of your own, you risk a catastrophic failure with the potential to threaten the existence of both the acquirer and the target—and the financial safety of clients. Do you have the time, resources, people, and infrastructures in place to handle such a move? What are you offering your current clients that potential clients aren’t receiving? Do these offerings have the ability to scale if you bring over more accounts?

You need to determine the feasibility of maintaining your current level of service while also managing newly acquired clients, since they will most likely expect those same services. By taking a closer look at your own business, you are more likely to identify any potential issues before they arise, which puts you in a better position to decide if pursuing an acquisition is the right move.

Financial Review

Whether practice owners realize it or not, every business has its own culture, so making sure both will mesh well is important – especially if planning to combine local offices or relocate employees...

The acquiring firm should hire a third-party accountant to examine financials and call out any potential risks. Examine its expenses carefully to determine how reasonable they are, whether or not they are likely to increase, and what alternatives you can offer to bring those costs down. Think about it from both incentivization and day-to-day operation standpoints. Are there expectations for annual raises or year-end bonuses? Can multiple office spaces be consolidated into one central location? What about the differences between healthcare, retirement, and other employee benefits and programs at both practices?

Having a better understanding of the other firm’s compensation structures, in additional to general overhead and operating expenses, will give you better insight into how it makes (and spends) its money. Compare and contrast with your own practice to see where adjustments can be made. Does the other firm operate on fee-based compensation, hourly rates, or commissions? Maybe some combination of all three? How practical would it be to shift the potential target’s model to fit your own (or vice versa) while still retaining both the advisors and their client base? How sustainable and scalable are current income streams? If you aren’t completely confident the investment will be worthwhile, then it is obviously not worth taking the risk.

Cultural Considerations

Whether practice owners realize it or not, every business has its own culture, so making sure both will mesh well is important – especially if planning to combine local offices or relocate employees. From a structural perspective, how would advisors and employees operate between the two businesses? Is one built around advisor service teams while the other promotes more of an individual advisor-client working relationship? Is there some middle ground between the two you could find to keep everyone happy?

Advisors looking to buy another practice will understandably have their own expectations as to organizational breakdowns, career trajectories, and other benefits, but major changes can disrupt or discourage employees both at work and at home. Of course, sometimes compromises and sacrifices need to be made, but having a better understanding of potential employee expectations at the other firm regarding remote work, parental leave, and more gives you the insight to help reduce potential conflict before the transaction even takes place.

Think Before Acting

Any advisor worth their weight should be thinking strategically about growth not only for their clients, but also for their own practice. Acquiring another book of business may seem like the most immediate route to achieving greater assets under management, but like any investment or business move, both known and unknown risks have to be carefully weighed before making any decision.