RIA Growth Strategies: What You Need to Know Before You Grow

Organic and Inorganic RIA Growth: What’s the Difference? 

The path to RIA growth can happen in two ways: organically or inorganically. How do you know which path is best for your firm?   

Organic growth is all homegrown. It involves adding clients through referrals, utilizing marketing and communication channels, and growing your team to expand your reach.  

Inorganic growth, on the other hand, primarily involves growth through the acquisition of another existing advisory firm. 

Both strategies have merit, but inorganic growth has seen an upward trend among RIAs over the past few years, and it isn’t showing any signs of slowing down. 

Despite being quite a chaotic year, Q4 2020 saw a record number of deals among RIAs. The first quarter of 2021 went even higher—setting another record with 58 total merger & acquisition deals.  

As a growth-minded advisor, M&A can be one of your top options for rapid and scalable advancement, but it isn’t necessarily a simple endeavor.  

Today, we’ll look at the various paths you can take to grow your firm through inorganic growth. 

Merging Two Firms

Merging two companies into one is a delicate process, no matter how well acquainted both companies are with each other at the beginning.  

Even though there are growing pains, they’re often worth the added benefits you can gain by combining your resources, contacts, and employees with those of another. 

While a merger or acquisition deal can look incredibly similar from the outside, there is one especially noticeable difference: in a merger, the C-suite typically shifts to reflect leadership from both firms involved. Whereas,  in an acquisition, the acquiring firm may represent the total ownership. 

If you’re considering a merger as a means to RIA growth, ask yourself how both firms will be fairly represented. 

Acquisition Options for RIAs

Acquisitions come in many forms, including:

1. Cash buyouts

These are the simplest (and probably rarest) of all acquisition strategies. One advisor gives the other cash, and the other gives up control of their firm or book of business. 

Of course, it’s never actually that simple. For most RIAs, raising the money you would need to pull off a cash deal would require extensive capital campaigns. 

2. Earnout

As the buyer, you are naturally inclined to save money, while the seller has a vested interest in getting everything they can out of the sale of the business. Since the seller has typically devoted themselves (sometimes for decades) it can be hard to find a number that pleases everyone. 

If you can’t agree on a price, an earnout plan can help both parties see eye to eye. 

These deals typically require far less upfront cash in exchange for an ongoing built-in revenue sharing model that will help increase your RIA growth for  a set number of years post-acquisition. 

3. Minority Interest

This is the “How do you eat an elephant?” strategy (one bite at a time). 

By acquiring less than 50% upfront and then paying out the rest over time, you get the added benefit of additional time and wisdom from the previous owner. 

Make Sure It’s Worth It 

Regardless of the path you use for RIA growth, it’s important to keep your vision for your own company in mind. 

If you find yourself making big concessions on your goals just to make an M&A deal work, then it’s time to take a step back and reevaluate your next move.  

Integrating People and Technology

The negotiation table may seem like the most demanding part of M&A, but integrating two companies after the deal has been made is a part of the process that can’t be overlooked.  

When the ink is dry, the real work begins. Before your firm commits to M&A, first put in place processes for how you’ll integrate your teams together. A written plan with workflows for training and onboarding new team members will set you on the right path.  

Most importantly, you’ll want to consider a unified technology platform.  This is a core piece of ensuring a smooth transition. Each team won’t be able to continue using different pieces of technology, so a conversion of one firm’s data will likely be in order. Make sure your technology partners have conversion experts who can step in and help you make the data transition as seamless and well-planned as your team training. 

If you put in the time early to map out your plans, inorganic growth can help your firm expand quickly and provide great client service to an expanded audience. 

Need help making sure you have the right technology in place to support your M&A plans?

Get in touch with Orion’s experts today to demo our comprehensive wealth management platform.