The search for new talent can be time consuming and intimidating. As with any company, online job boards like Indeed and Monster are good starting points. There are other resources to supplement these tools, and as a financial advisory firm there are some unique tools you can leverage. Whether you’re looking to recruit experienced advisory professionals, or fresh, new talent, the following are 11 more resources for finding new talent.
Wealth management firms seeking rapid growth are increasingly turning to mergers and acquisitions (“M&A”) as a solution. As such, we are seeing a lot of M&A activity involving firms with multiple owners, staff, and even real property. Many practices are looking to be acquired or merge with a larger business to spur growth, to benefit from economies of scale, to offload compliance and day-to-day operations, to increase bandwidth and offerings to clients, or to assist with the retirement of one or more senior owners/partners, among other reasons. Given these complicating factors, negotiating and documenting these M&A transactions can often be more time consuming than the parties expect, which creates the perfect incubator for deal fatigue.
Deal fatigue is a condition during negotiations when one or more of the parties begins to feel frustrated, hopeless, irritated, or even angry about the pace of the transaction. Deal fatigue–at some level–is almost impossible to avoid in a complex transaction, but if caught early and prepared for it can almost always be successfully managed. If not, deal fatigue is one of the surest ways to destroy a transaction. The key is to know the causes and signs of deal fatigue as well as the tools to minimize its negative impact.
Causes of Deal Fatigue
There are of course many causes of deal fatigue, but some of the most common ones that we routinely see are:
Deal fatigue is typically correlated with the time it takes to complete an M&A transaction. Typical transactions take about three months. Parties can get frustrated if they feel like they’re being rushed, while others may feel frustrated if the process starts to feel too drawn out. Striking a balance between the two is important.
When it's time to sell your financial advisory practice, knowing the value of your business is just as important as finding the right buyer. But as you begin exploring your options, determining who will be the right buyer to take over your business often takes center stage. The FP Transitions® Open Market will not only locate a new owner who is a good fit for your clients and investment style, but also help you obtain the most value from the sale.
Benefits of the FP Transitions Open Market
Tapping into an open marketplace has benefits for both buyers and sellers. Buyers have access to a larger pool of acquisition opportunities with the potential to meet their strategic goals. This includes those outside of their already established network and area, allowing them to expand their reach. And sellers gain access to a large number of qualified buyers in order to find the best possible buyer for their business.
During our 2021 Mid-year Market Update, in addition to up-to-date transaction data and trends, our experts, M&A Director James Fisher, JD and CEO Brad Bueermann, explored some myths and misconceptions about the current M&A marketplace.
The problem with misinformation is that as a buyer you may find yourself discouraged from exploring acquisitions or mergers as a growth strategy or from inquiring on businesses that could be a great fit and expand your reach. As a seller, misinformation can lead you to compromising your fit criteria or from exploring a wider pool of buyers.
The following are the top five misconceptions we hear from advisors and from other market participants.
MYTH: Reported transaction data shows a complete view of the industry M&A marketplace.
No current reporting of annual M&A transactions–including ours–encompasses activity across the entire industry. Even if data is being reported based on publicly advertised transactions, many are private and not publicized as larger M&A deals tend to be. Details and terms are often kept confidential regardless, and, as the old adage goes, "the devil is in the details." So, comparing the data and transaction activity across firms participating in M&A can be tricky.
We're pleased to announce that FP Transitions was named one of CFO Tech Outlook's Top 10 Valuation Service Companies of 2021, recognizing FP Transitions' efforts and placing our team at "the forefront of providing Valuation consulting services and transforming businesses."
The publication accolades were accompanied by an article: "FP Transitions: Providing Comprehensive Valuation Services," featuring our Ryan Grau, CVA, CBA, Partner and VP of Business Valuation Services. The full text of which can be viewed below or by clicking here.
Last month our M&A Director James Fisher, JD and CEO Brad Bueermann delivered our 2021 Mid-Year Market Update and explored marketplace activity for the first half of 2021.
We all know that 2020 was a truly unique year on all fronts. The financial services M&A marketplace was no exception (as we discussed back in January). The effects of 2020 have carried over into 2021 and have impacted transactions in some unexpected ways–and have potentially changed deal term norms from here on out.
Our full Mid-Year Market Update presentation was close to 60 minutes, including a live Q&A session, and covered up-to-date transaction data and trends, realities of today's industry, qualities of successful buyers, and common acquisition misconceptions.
To focus in on some of the most important highlights from the session, Craig Strauser sat down with James Fisher, JD to discuss them further. Watch their chat below.
Many financial services businesses focus on revenue strength while downplaying–or ignoring–enterprise strength. However, revenue strength and enterprise strength are both critical to the growth and sustainability of a business. When revenue is the sole driver of your value, you’re leaving money on the table and jeopardizing the long-term success of the business.
Since revenue and enterprise strength influence the value of your business in different ways, it's crucial to understand these differences and why balancing the two is so important. While clients, fees, and assets under management (AUM) pay the bills, the absence of a solid business infrastructure will put a company's longevity at risk. Whether you’re determined to create explosive business growth or have a sale–external or internal–on the horizon, knowing how to position your company now can result in a higher return on your efforts and investment for the years to come.
Revenue vs. Enterprise Strength
Revenue strength represents the source, quantity, and quality of your cash flow. This includes your active income generated based on advisory fees, commissions, and other financial planning services. Revenue strength accounts for your team’s compensation and other business expenses. Revenue strength represents the top-line accounting of the business.
It's the value of your book.
FP Transitions conducted most of its work by phone and video conferencing long before the virus made this approach commonplace. So, it is with a great deal of humility, and a little courage, that we admit that even after two decades of honing our craft, we’re still perfecting how to provide consulting solutions in this fashion, to this unique profession.
Providing advice over a phone line or a computer isn’t all that difficult; what’s harder is gathering enough high-quality and relevant information to diagnose the problem or problems and then to provide customized, accurate and practical solutions. To do all that, we’ve had to learn how to listen at a professional level–and we had to design those systems and processes almost from scratch.
The mistake that almost all consultants and coaches in this industry make is to try to get an advisor on board as quickly as possible so that, as information providers, they don’t give away too much up front or spend too long trying to help only to be passed over as the service provider. The process usually comes down to 30 minutes of discussion and then a quick diagnosis that best fits what the consultant or coach has to sell, rather than what the client truly needs.
We don’t do it that way.
Recurring revenue is one of the most important single determinants of value. Revenue produced through management fees, trails, or renewals is ongoing and reasonably predictable. Transactional revenue is more elusive and difficult to predict. While this isn’t cutting edge news, it is important to understand that recurring revenue is more predictable and presents less risk of future earnings when compared to transactional revenue. As such, when a portion of revenue is generated from transactional revenue, buyers will require a higher rate of return (discount) when compared to other market alternatives that provide more certainty.
Rule of Thumb?
It is important to understand the difference between an adjusted pricing multiple based on the specific characteristics of the business being valued versus a “rule of thumb.” A rule of thumb for the financial services industry is that businesses sell for two-times gross recurring revenue and one-times non-recurring revenue, or that they are worth five-times Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Often sellers approach us asking if the offer they have received based on a rule of thumb is sufficient or fair. This question cannot reasonably be answered without understanding the revenue characteristics of the practice.
In our over ten years’ experience helping businesses design and implement internal succession plans, we’ve seen that each generation—G1, G2, and G3—can, naturally, have their own distinct points of view and priorities. These differences are common and normal. By acknowledging these differences and communicating with each other, teams can adjust their expectations, align their priorities, and see their transition plans work out to the satisfaction of everybody.
But how do you align different priorities within your own ownership team? Below are three examples of how to facilitate this alignment. These examples are not of particular clients, but are taken from a conglomeration of advisor situations over the years.