Building an Acquisition Pipeline for RIAs: A Guide to M&A Success

Everyone knows that consolidation is a major trend sweeping the wealth management industry. There is no shortage of resources offering guidance on basic M&A topics like valuation, due diligence strategy, deal structure, and post-merger integration. However, many industry players aiming for growth through acquisition stumble even before reaching these stages. Their struggle lies in successfully sourcing targets and establishing an acquisition target pipeline. While referrals or personal connections may occasionally fall on your lap and lead to a future deal, relying solely on luck is not a sustainable approach, and businesses need more than just one or two advisor succession opportunities to compete with the ongoing wave of acquisitions. 

Despite the increasing consolidation trend, sourcing high-quality acquisition targets remains a significant challenge to the success of these deals. In 2024, the market is expected to favor buyers rather than sellers. This shift will inevitably lead to increased competition among potential acquirers, intensifying the need for a strategic and systematic approach to identify and attract the right targets.

So, let’s not “put the cart before the horse” and focus some much-needed attention on the first steps to execute a successful M&A strategy: identifying viable targets and building a deal pipeline.

STEP 1: Develop your transaction thesis.

1. Establish your transaction goals: what are your desired outcomes from acquiring? Are you aiming to expand capacity, drive revenue growth, acquire talent, enhance cash flow, or enter new markets? A lack of goal-driven transactions will lead to unsuccessful outcomes that can be a costly drag on your business.
2. Align your goals with your transaction thesis: how will your transaction thesis change based on your ultimate goals? If you seek to gain capacity and expand your firm’s overall human capital talent, your transaction needs to be structured to retain the acquired advisor for the long term. Conversely, if you are primarily seeking to grow revenue or increase free cash flow, then your transaction should focus on ways that help the acquired advisor exit the business as quickly as possible.
3. What do you offer to your acquisition target? Based on your transaction thesis, it's also important to understand the different parts of an offer that will appeal to a target, such as up-front cash, advisor services, client services, or growth opportunities—all these could impact your ability to attract and close a deal successfully.

If you take the time to align your transaction thesis with your overall goals, you are more likely to achieve your objectives. Once you have that in place, the next step will be finding the right targets for your transaction.

STEP 2: Identify your targets.

Before you begin your outreach or true business development, you must identify who and where your targets are by determining their type, size, and geographies.

1. Target type: simply put, your M&A strategy will revolve around 3 “types” of targets, RIA owners, IAR advisors, and IBD advisors.
    
   • RIA owners: they are sole owners or partners in existing RIAs. These “types” of targets would be the right person to speak with if your goal is a full acquisition or strategic partnership/merger with another RIA business. These are the key decision-makers for the firms they own.
   • “IARs” Independent Advisor Reps: these are financial advisors who work at RIAs and may “own” their individual practices and client relationships but are not partners in the RIA business itself. These advisors have no decision-making power over the business, so your goal when speaking with these targets would be to acquire their individual practices or to have them join your firm as independent advisors without an acquisition. In many cases, this “type” of advisor does not have their own LLCs, so this would need to be created before any acquisition.
   • “IBDs” Independent Advisor Broker Dealers: these are financial advisors who work at large independent broker-dealers. Much like "IARs", they only have ownership over their individual practices. Unlike "IARs", however, many already have their own LLCs and act largely independently from their corporate RIA.
2. Target size: next, you must narrow down the size of the business you are willing/able to acquire or partner with.
    
   • What is the right size for you? Well, sometimes, it’s a simple calculation of understanding how much capital you have available to spend. Other factors you should consider are how the size of the acquired/merged business will impact your existing business. Do you have the resources available to service all the new client relationships?
   • How do you determine size? For RIAs – ADVs will reveal AUM & number of client relationships. For IARs and IBDs, the answer is more complicated. You will need to invest time and energy doing some segmentation on each target by researching their websites and LinkedIn profiles. More on this later when we touch on data.
3. Target geography: finally, you must determine where your ideal target is located. Where can you successfully execute? We highly recommend focusing your targets on the geographies where you already have a presence; this ensures effective communication and close interaction between you and the newly acquired business. However, if you are contemplating strategic expansion into new territories, there is certainly a valid argument for targeting beyond your current reach. There is no definitive answer when it comes to geography, but it is crucial to have a clear vision because searching the entire country is too broad. A targeted approach tailored to your specific goals will undoubtedly yield superior outcomes.

STEP 3: Gather, segment, and enrich your target data.

Once you know the type, size, and geography of your ideal targets, you must figure out who they actually are and how to actually contact them. Finding contact information may not sound like rocket science but it can be far more complicated than it seems.

1. Target data sources: there are several industry data sources at your disposal to obtain accurate and up-to-date information about your target advisors' type, size, and geography. These data providers include but are not limited to Discovery Data, AdvizorPro, FINTRX, RIA Database, etc. None are necessarily better than the other, but cost will be a major consideration. Do your comparison shopping because data is the most expensive part of any outreach campaign. Between the data itself, CRM software licenses, and data integration projects, your total spend on data could cost tens of thousands of dollars annually. Outside of cost, make sure your data provider has a specialty in the types of targets you are primarily focused on. Some data sources specialize in RIA owner data, while others may have a better solution for IBDs data. Make sure to get a demo of each product before committing to one. Also consider that while these data providers generally do a great job cataloging financial advisor info on current/past firms, licensing, and general contact information, you will likely still need to do some additional data enrichment to find the best contact info before you launch your outreach campaign. More on this later.
2. Segment your target data: not every advisor is a target. Once you have selected a data source, you must segment the “universe” of financial advisors down to just the group that is relevant to you.
    
   • Start with target geography: this is the simplest way to segment down the group of potential targets. Only focus on the geographies where you want to have a transaction.
   • Next, focus on the “type” of target you want: For example, if you are only interested in acquiring an RIA, then your list should only target RIA owners. Data can be manipulated to ensure you only see targets with an ownership stake in an RIA. Alternatively, if you only want to focus on IBDs, segment your list to only advisors currently working at a select list of independent broker dealer firms.
   • Finally, focus on target “size.”
     
     
     • For RIAs, this is relatively straightforward. You simply need to research the AUM size reported on the firm’s ADV filing to the SEC. This can be found within many of the data sources, or you can search individually via the investment advisor public disclosures on the SEC website.
     • For IARs or IBDs, this is more complicated. You must find a way to determine the approximate AUM of that advisor’s individual practice, but since they are part of a larger corporate RIA, there is no specific filing to guide you. You must leverage other clues found on company websites and personal LinkedIn profiles to segment these advisors on approximate size groupings. Some helpful context clues are title, tenure at the firm, office location, team size, awards/accolades, etc. The challenge is that clues like “title” can vary from firm to firm. A vice president at one firm could be a junior advisor managing $40M in assets, while that same title at a different firm could be a 30-year veteran managing over $200M. This level of segmenting requires skill and experience, and sometimes, you may benefit from a 3rd party to help with this.
3. Enrich your target data: once you have narrowed down your target group, you must ensure you have the best contact information to conduct outreach. You’ve already invested significant money into a data source and considerable time in your segmentation process; you must now invest in the integrity of your data.
    
   • Manual enrichment: it requires you or someone on your team to research each individual target contact information such as work emails, personal emails, LinkedIn profiles, phone numbers, etc. This can all be gathered with some savvy internet research, and even though it is time-consuming, it’s necessary.
   • 3rd party enrichment: alternatively, there are 3rd party data sources specializing in enriching contact information. Some of these data providers include ZoomInfo or Lead411. Your advisor-focused data source may provide some contact information, but you will likely want a 3rd party that specializes in contact info.

STEP 4: Messaging strategy – what’s your story?

Even when potential targets have been identified, winning them over can be equally challenging. Since in 2024, we expect to see an acquisition buyer's market; sellers will tend to be more selective, emphasizing the importance of having a compelling messaging strategy that addresses the needs and aspirations of potential targets. Focus your message on who you are, what you are trying to accomplish, and how you will benefit a target; not every message must include all three points but ensure consistent messaging throughout your outreach campaign.

1. Who are you, and why is your firm a desirable partner? Before you even describe your transaction thesis, you must identify what differentiates you and your business from everyone else in the market trying to execute similar growth strategies. What makes your firm special? Why is your firm an attractive destination for advisors looking for a partner? What are the key benefits of partnering with you? Think these through, and if you find that your firm is deficient in some of these areas, you might want to check out our RIA Growth Guide, which touches on these points.
2. What problem do you solve for targets? You need to clearly identify the pain points you will solve for a target. If you are seeking for retiring advisors, then you are solving their succession plans and ensuring their clients will be well cared for after they retire. If your targets are full businesses, then you may be solving monetization issues for RIA owners by allowing them to take some chips off the table. If your targets are IARs, then you may just be providing a better platform for them to run their businesses *or* you may just be offering them better economics than they get at their current RIA. Keep the other person in mind when you develop this part of your story.
3. Clearly describe your own goals or “transaction thesis.” Is your business interested in full acquisitions, or are you looking for a partnership? Are you seeking a merger of equals, or are you simply looking to recruit more advisors into your firm? Be precise about what types of transactions you are trying to pursue, and make sure you have a clear way of messaging that to your targets. State your goals and let people opt out if they are not aligned. To build a good pipeline, we must weed out any candidates who don’t align with your goals.
4. Call-to-action: ensure your messaging has a clear call-to-action or CTA. For most messages, this should simply be a request for an introductory call. This will give you the opportunity to speak with a target, share your story in more detail, and learn more about their business. Other CTAs can include an invitation to join a webinar or encouragement to download a white paper you have written about a relevant topic. Regardless of what it is, every message sent to the target should have a clear CTA that allows them to interact more with you or your content.
5. Build your solicitation campaign: develop 2-4 messages that touch on the points above. This messaging should focus directly on your transaction goals and the reasons why a target would be interested.
6. Develop “nurturing” material: in addition to a direct solicitation campaign, you should also develop nurturing marketing collateral to keep you or your firm top-of-mind. This can be your thought leadership materials, client content you’ve already created, market insights, an exciting announcement about your firm, or press releases. Simply put, this content can be anything you feel sets you or your firm in a positive light to help build your credibility with the targets.

STEP 5: Execute your outbound strategy.

Conceptually, this is as simple as sending some emails or making some phone calls, but this could be extremely time-consuming and inefficient use of your time. There are ways to make this process more scalable.

1. Leverage email automation tools: many CRM platforms have email automation capabilities to help you execute these campaigns. Systems like HubSpot Sales & Marketing Hubs have built-in email automation, while Salesforce may require integrations with 3rd party tools.
2. Make the most use of the tool: once you have selected an email automation tool, you must ensure you use it to its fullest capabilities. Don’t just send one email at a time—through some configuration and design, you can set up campaigns to send multiple emails to each target on a set timeline. These tools also help disqualify bad targets, as anyone who “unsubscribes” from your campaign can automatically be pulled out of your list.
3. Leverage engagement data: these tools can provide valuable insight into how your targets interact with your outreach. They can track who’s opening each message, links clicked within each message, and any content downloaded within each message. This data will help you determine the best way to follow up with each target.
4. Texting: SMS outreach works in similar ways to email automation, but obviously, you’ll need to ensure you have good cell phone contact data for this to be valuable.
5. Professional networks: LinkedIn has shown to be a useful tool for making connections with targets. This method should be used in conjunction with emails and texts as it may enable you to connect with targets who do not respond via the other channels.
6. Pick up the phone! Finally, and most importantly, you *must* make personal follow-up calls. It is time-consuming, but after your targets have been nurtured and are familiar with your company & content, this is no longer a “cold” call. Many targets will respond directly to the email content, but many won’t act until you pick up the phone.

Conclusion

Finding these targets in the vast and diverse wealth management landscape is no easy feat—it requires an in-depth understanding of the market, a comprehensive data-gathering strategy, and a resilient pipeline-building process.

The process described above may seem daunting and even intimidating, but it's important to remember that it’s a numbers game—not everyone who reaches the diligence and valuation phase will successfully close; that's why it's crucial to establish a sustainable pipeline that yields an ongoing flow of new conversations.

Building an effective acquisition pipeline is only the beginning of your M&A journey, and it's undeniable that it requires a significant investment of time, effort, and resources—so you may benefit from outsourcing this task to an experienced partner to do all the heavy lifting for you.

Our team at Edge Partners has a proven track record of executing successful acquisitions from beginning to end and is ready to partner with growth-oriented RIAs.

If you're interested in learning how we can implement this strategy on your firm’s behalf, visit Advisor Pipeline Pro or book an intro call with one of our growth experts, Roberto Stevens—he'd be happy to walk you through a case study.