A Purpose-Driven Approach to Inorganic Growth

In addition to pursuing organic growth, many RIAs are looking for attractive opportunities to expand their business by acquiring or merging with other advisory firms. Identifying compelling inorganic growth opportunities has become increasingly important as the aging advisor demographic and the need for transition provides a catalyst for mergers and acquisitions (M&A). In fact, the wealth management industry saw record-breaking M&A activity in 2019, and deals saw only a slight decline during the first quarter of 2020 amid the Covid-19 outbreak, according to Echelon Partners RIA M&A Deal Report.

At Thrivent Advisor Network (TAN), we view practice growth as more than just a path to increased revenue. We believe growth ultimately is about delivering better solutions that enable clients to achieve their goals. This is growth with purpose, and we work closely with our affiliated advisors to help them assess M&A opportunities to ensure a good fit with their vision for their practice.

Drawing on our extensive industry knowledge and experience working with RIAs, we’ve identified several key factors that we believe are critically important for purpose-driven advisors to consider when assessing inorganic growth opportunities.

Due diligence on the financials is, of course, an essential component of any deal evaluation. That includes a careful analysis of the impact of the deal on your existing revenue, cost structure, profitability and future growth potential.

As an independent RIA, you will likely need to work with an investment banker to do a comprehensive assessment. At TAN, we partner with an investment banking firm that acts as a mentor to advisors on our platform. Together with our partner, we guide advisors through the due diligence process to ensure any potential deal makes financial sense and is structured properly. TAN also can provide capital support to help advisors fund growth of their practice. And since funding is provided by Thrivent, a well-capitalized Fortune 500 company, it doesn’t come with the short-term restrictions of private equity funding.

While a careful assessment of the financial business case is critical to the success of any M&A transaction, purpose-driven advisors will want to devote as much if not more attention to ensuring a deal is a good fit in terms of the two parties’ shared values and cultural alignment. Without close alignment of vision, approach to how they run their business, and style of interaction with clients, any partnership or merger is likely to fall short of expectations.

A good cultural fit is especially important for advisors focused on helping clients to not only achieve financial clarity but also to live lives full of meaning and gratitude. Focusing on cultural alignment early in the process can help identify issues that may ultimately prove to be deal-breakers in the long run.

For example, at TAN, we view money not as a goal in itself but as a tool that allows people to focus on their personal priorities. We look to bring into our network those advisors who share that outlook. As an advisor looking to acquire or merge with another practice, you similarly will want to get a clear understanding of the other firm’s values and priorities before deciding whether to move forward.

Here are a few questions to ask when weighing cultural fit:

• How closely aligned are the two practices in terms of vision and purpose?
• Is there a shared commitment to integrity?
• Is there a similar approach to helping clients achieve their financial goals?
• Would you and your clients be comfortable working with the other firm’s advisors?

Another factor to consider when assessing a potential merger or acquisition is how the other firm’s client profile fits with that of your practice. Start with the basics: average age, tenure of relationship and location. You may want to look at whether the firm’s clients are overly concentrated in a particular industry or employer, potentially exposing you to concentration risk. Also, try to get an understanding of the clients’ values. Are they socially minded? Are they active in their communities? Does faith play an important role in how they use their money?

Additionally, you’ll want to make sure the other firm’s investment philosophy and risk tolerance are aligned with your own approach. Do you understand, and are you comfortable with, the other firm’s approach to investment risk, including alternative investments? How does that fit within your overall investment philosophy?

At TAN, we go through a similar thought process when assessing and recruiting advisors to join our network. During the due diligence process, we adhere to high standards for risk and compliance. More importantly, we look to shared values and purpose as an essential requirement for any successful partnership. And we don’t hesitate to turn down opportunities to bring advisors onto our platform when the overall fit isn’t right based on those criteria.

We know that TAN’s growth as a platform is dependent on the growth of our affiliated practices, so we make it a high priority to help our advisors scale successfully. Ultimately, sustainable growth depends on your ability to provide valued solutions that enable your clients to achieve their goals.

Like you, we aren’t looking for growth just for the sake of growth. Our ultimate goal is to empower you to help your clients use their money to live lives full of meaning and gratitude. We do so by providing you a platform to deliver values-based advice in a flexible and supportive environment, and by helping you access the tools and resources you need to take your business to the next level.