Preparing to Sell Your Financial Advisory Firm?
Ron Carson is one of my heroes and mentors. He’s the founder of Carson Group Holdings, he has grown Carson Group to over $15 billion in assets under advisement, he’s a New York Times bestselling author of Avalanche and The Sustainable Edge. In this episode, he’ll help us understand how advisors can prepare to sell their financial advisory firm, including:
- What’s the selling landscape like for advisory firms today?
- How can advisors plan to get top dollar for their firm?
- What are the factors that go into valuing a financial advisory firm?
- How can advisors prepare 5 or 10 years out to sell their firms?
- What are the factors that impact the success of a transaction?
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Claire Akin (CA): Thanks so much for joining me for The Marketing Podcast for Financial Advisors. Today’s guest I’m really excited about is Ron Carson of Carson Group. Ron has been one of my mentors and one of my heroes for years in this industry. He’s really one of the big players in the industry, one of the most knowledgeable people, and he’s done so much for advisors out there. Of course, he’s an advisor himself, running his firm with almost $10 billion assets under management, 124 locations.
He’s also a New York Times bestselling author with three books: Tested in the Trenches, Avalanche, and my personal favorite, The Sustainable Edge, which I highly recommend to any advisors out there. It’s like Tony Robbins meets business management for financial advisors. It’s an incredible read and I recommend picking that up on Amazon. He also created a coaching platform for financial advisors, and he’s coached hundreds of advisors to maximize their potential. He also developed a marketing platform specifically for advisors, and he’s one of only two independent financial advisors in the Barron’s Hall of Fame. I just wanted to take a moment to welcome Ron to the show today.
Ron Carson (RC): Claire, thank you. You’re so sweet. We’ve known each other for quite a while, and you do a lot for our profession. Really honored that you invited me on your podcast today.
CA: Great. Awesome. I just want to start out asking, personally, how is life going? What are you excited about? What are you most looking forward to, personally, in your life?
RC: I recently did a 100-mile mountain bike ride in Moab with some of my new partners in Salt Lake City, and they’re asking about my travel schedule, and I was talking about the next 11 cities, I think, I was going to be in before home. He goes, “Is it work, or is it play?” I said, “I don’t know. You decide, because I can’t really distinguish them anymore, because I love what I do.” So, when you say personally, I’ve got a new grandson, Carson, who’s a year old, who is just absolutely the light of my life. Also personally, working on our ecosystem. We at Carson are already out to the fourth quarter of 2020, into the first quarter of 2021 on deliverables, on value-add. We call it value beyond a doubt for our value proposition and our partners. That’s what gets me up out of bed and super excited every day.
CA: That’s awesome. Congratulations on your grandson. That’s so much fun. Talk just a little about where you think the biggest opportunities or the biggest new things are happening in our industry. What are you looking forward to in our industry and for advisors out there?
RC: I think we’re at a real turning point, Claire. Let me take a step back. Have you seen the most recent numbers on adviser growth by asset category?
CA: I don’t think I’ve seen those numbers.
RC: It is so telling, and I’ll paraphrase it, and anybody out there can go get the copy of this. These numbers are not up for debate, and I think it plays into your topic today on acquisition, because what they did is they looked at ADVs from five years ago, and then looked at the AUM change to the end of ’18, and the numbers directionally didn’t surprise me, but the gap shocked me. At the far end of one extreme they had firms that were 10 million and below in AUM, and then, at the other extreme they had firms that were 5 billion and above. I had always heard that. Over that same five-year period, the market grew 10.68%, so that’s a kicker for the S&P 500. We’ve always heard, oh, it’s easy to grow… If you have 10 million in AUM and you go to 20 million, that’s easy, because that’s 100% gain. To go from 5 billion to 10 billion is harder. Wouldn’t you think that would be conventional wisdom, Claire?
RC: Right. The numbers, the flow… As you went up in size, the 10 million and under were going backwards quickly. In true NNA, when you strip that market growth, they were contracting quite a bit every year, and it wasn’t until you got to a billion firm that you were able to not grow, but not go… When you strip market growth away, you are basically staying even, and the 5 billion above are growing super fast.
RC: I know. Like I said, if someone had just said, “Oh, directionally, here’s what’s going on,” I would have said, “Ooh, that doesn’t sound possible that there’s that big a difference,” but it’s what’s going on today. You ask what should advisors be looking for. Really, for a strong partner, because I think you’re at this point where you have to decide, am I going to be disrupted, or am I going to be part of the disruption? I really believe it’s that. I know there’s advisors that take issue with this, but there are several things going on. I think the NNA tail is a huge one, and the reason I think advisors are struggling today is they’re asked to do so many things.
We started out as an advisor. I had a lady in yesterday, 96 years old, she’s been a client of mine for 34 years. She gives me a hug, she tells me she loves me, she could never have had the life that they had without us doing what we do. It made my year. There’s nothing that felt better. I’m thinking, when I started working with her and her husband, then it was so simple. I’d go in, I’d sit at the kitchen table, I’d give them basic advice, which, for them, was great advice. We did a financial plan, we got some state documents done. Pretty simple, charge them a traditional fee and use product, and they’re very happy. Fast-forward to today. We have a very informed buying public that will pay a fee, and I hate the term fee. Let’s call it investment, because no one’s paying an advisor 1% to make 1% a year less. They’re making an investment in their future; they want to see value beyond a doubt.
When I say what’s exciting out there is this turning point, there is massive opportunity, but there’s also a lot of risk. The opportunity is this: we have 111,000 advisors and most of them do not have a succession plan. I hear people that say they do, and we’ve done 124 deals, and we get into them and they really don’t. They don’t have one that would be sustainable, or their clients would stick around. You’re going to have a massive change in the marketplace with advisors. Clients are going to be in play because they don’t have an executable succession plan. Combine that with the fact that some of the coolest, newest technologies are allowing us to add value beyond a doubt, whether it’s getting into the banking business and disintermediating poor cash that banks are providing, legal document production, financial cognitive testing for clients. One we’re rolling out next week in Chicago at our Excel meeting is the VOR, value of the relationship, where we can actually monetize that.
Back to your original question, the opportunity for advisors that have the energy to actually want to be part of adding that kind of value. There are 65% of Americans who still do not trust financial services, and it’s not that they don’t trust you, that you’re going to steal their money, they don’t trust that, am I getting a return on the investment that we’re making? The holy grail that I think this technology… We just saw yesterday some AI that was demoed to my team that just blew our mind. Imagine a world where we operate… I call it the three dimensions of trust. The third dimension is we anticipate a client’s need before they even know they have it; we’re doing things well out ahead. We’re also experience-based behavior, where we understand what they’re doing and when they’re logging on, what they’re looking at, what they’re reading, so we can anticipate their needs. The opportunity to really move the needle in people’s lives has never been greater, and for them to be able to measure that. That’s why those big firms are growing, because they’re able to build out that kind of infrastructure.
CA: That’s incredible. One of the reasons I had you on the show today is I have so many advisors asking me, “What should I be thinking about when it comes to selling my firm?” My own dad is 70 years old and he thinks he’s going to work forever, but he realizes he has to protect his clients and he has to protect his family if something happens to him. He needs a plan in place that’s going to take care of these people who are his friends, people he’s been serving for decades. To come to an advisor and say, “You really have to have a plan in place for your clients. But what if that can be a plan that could provide better service, better value to protect them even more than you’re already doing?” Then it starts to sound compelling, and so we just want to get started talking a little bit about, what are you seeing out there? What’s the selling landscape? What should advisors really know when they’re getting started thinking about selling their firms?
RC: I’ll just share a real-life story that just happened. I had a lady that called me. She goes, “My husband died unexpectedly. I thought he had a succession plan, and I’m telling you, the assets all left so fast, and it was $1 billion of AUM advisory assets just gone.” We had an advisor in our coaching group killed in a hang-gliding accident, thought he had a succession plan, had a wife and two kids, nothing left. The people over there took the assets, or the clients just left. We go to a conference. How many want to be buyers? 95% of the hands go up. How many want to be sellers? Almost none.
The big question is, how many people have the ability to literally be a buyer? If you’re selling your firm, I would prioritize what’s most important to you. Is it terms? Is it optimizing price? Is it giving you optionality for the future? Can you stick around as long as you want, be a part of the future? Is it providing a smooth transition to the next generation? There are not nearly enough deals. What I would say is if you’ve made a conscious decision to say, “You know what? I’m 100, 200, 300 million. I just don’t have energy,” I think it’s smart to sell now, because these trends… You’ve got the market up. The market goes down and you’re not truly growing organically. Then, every day that goes by that you’re not growing organically, your firm is going to become worth less, and that’ll be exposed overnight in a bear market, and I think there will be a lot of shifting of relationships in that.
Start with making a list of what’s really important. There’s plenty of buyers out there, and I would look for buyers that are well-capitalized. Especially if you’re going to stick around, is there equity that you maybe would rather have? You can take some cash, take some equity, and be a part of the future growth. We just announced yesterday, this was a perfect setup, $575 million firm in Indianapolis. It’s going to take on the brand with Carson, but they needed succession, but they also really wanted to start growing again. Even at that level, they have been truly flatline for the last several years. I mentioned you need to make a list, Claire, of what’s important to you, and then that’ll start to sort out who the potential partners could be. If you decide, hey, I don’t want to sell and I want to plug in and be part of something, then I think that’s a separate path and decision-making process path that you would go down.
CA: Absolutely. Let’s talk about the elephant in the room that everybody wants to know but is afraid to ask. What kind of valuations are you seeing?
RC: I get asked this all the time, Claire. When they’re looking to join our partnership, they want to know up front what’s it worth, and what your growth rate is really… Your organic growth rate is going to be a big factor in price. Then I’ll answer your question. The other is, is there any concentration risk? What’s the age of the client? There’s basically a present value of all the cash flows that will be coming in. What’s the next generation that’s actually there? Is it in place, or does it have to be grown and imported from somewhere?
By the way, I can pay any amount for a firm if they let me dictate terms. Terms are way more than price, but no one ever says, “Hey, what are the terms out there?” I never get asked that question. I always get asked, “What’s the price?” The price is this: I’m part of two groups that are basically M&A groups on our own deals, and then we also brought on Jason Carver, who heads up our M&A group. He came over from Focus. So, he’s seen thousands of deals. They range anywhere between 2 and 21 times earnings.
RC: Think of that change. It’s massive, and there’s so many factors that go into it. I mean, I could give somebody an off-the-cuff, “Hey, it’s 2.2 times your reoccurring advisory AUM,” but it could go a lot higher, it could go a lot lower. We’re looking at a firm right now that is growing so fast, organically, through their lead generation system that they need us to provide advisors to them. So, that’s a whole other… We automatically know… We do an acquisition, they’ve got this recipe for generating lots of leads.
We can afford to pay more for that because we’re going to be able to plug in advisors that will dramatically increase that AUM over a short period of time. Those are all the factors that go into it when you’re evaluating the price. The first question I would ask is, what kind of terms do you want? Then you can start to back in. I sold a third of my firm to a private equity firm. I took a lot less, consciously, because I wanted 100% control and I didn’t want anybody breathing down my neck about how I wanted to grow and develop my firm. So, it was a trade-off.
CA: That’s great. I think that a lot of advisors just want to do that calculation and ask themselves, “Can I get financial freedom if I were to sell my firm today?” And answer that question yes or no, and either get better so they can get there, or maybe keep working forever. What are some of the mistakes that you see advisors, when they start doing these transactions, when they are moving along this pipeline, what are some of the big mistakes you’re seeing?
RC: I can give these from mine. I’ve made so many mistakes in this, and that is not getting the cultural fit right, and I cannot stress the importance of this enough. I’ve always said… I have a whole talk, culture eats strategy for lunch, and you can have the best strategy in the world, and if you can’t get people to buy in, be excited, have core values that they live by, the organization lives by, it doesn’t matter. So, getting the culture right, so spend enough time on both places. Is this really going to work? Always think of Monday morning. It’s exciting to do a deal, it’s exciting to talk about a deal, but then Monday morning rolls around, the deal’s done. Just imagine how you’re going to feel. Are you super excited, or once the foray of the deal wears off, do you have remorse that, okay, I shouldn’t have sold, or I shouldn’t have merged…Visualize that. But definitely, definitely, definitely get the culture right.
The second thing I would say is, think of it as a prenuptial. You never plan on getting divorced, but spell everything out. If things don’t go well, how would you unwind a deal?
Three, really spend time detailing. The more detailed you can be well before you get to a letter of intent… By the way, if you put a lot of time into the letter of intent and allow the deal to actually have a much higher success of closing, or there’s not a lot of detail in the letter of intent, the chances of actually consummating the deal go down dramatically.
I also see geographical reach. Toberson has some great stats on this, where he said if you’re number one or number two in your market, you automatically have a gravity pull of clients, and I believe that’s true. Or, if you try to dominate your area and don’t get geographically spread thin. That’s another mistake I made. My very first deal I did was in San Rafael, the San Francisco Bay area, and it’s taken a lot of importing our people, but it’s a long distance. Now it’s working fine, but when it was just Carson in Omaha and our first deal was in San Francisco, it would have been smarter to do my first deal right here in Omaha.
CA: Right. They say most acquisitions are within 90 miles of where you are right now, so it’s smart to stay local.
RC: Yes. I want to come back to… You’re going into this, what’s perfection look like? The things that you want out of it for you, for your family, for your stakeholders? This is one of those where… Please just be honest with yourself. You don’t have to show it to anybody, but hey, if the number-one thing is maximizing how you do, just be honest with yourself, because that’ll make a difference on how the deal is structured and who you partner with. If the most important thing is taking care of your clients, it’s going to be a different partner. If the most important thing is taking care of your internal stakeholders, it might be a third partner.
I think you’ve got to really be clear on what it is that you want to do. I can tell you without a doubt, my 124 offices, I would trust every one of them with my clients, with my family’s money in the event I died, because they all did deals based on the value proposition and taking care of internal stakeholders and clients first; not getting the highest price, but getting the highest value. We walked away from a lot of deals where it was just about a money grab, and that’s culturally not where we’re going, or the partners are trying to advance. So I think getting that right up front, Claire… It will save you a lot of heartache in the future.
CA: That’s great, that’s fantastic. What about advisors that aren’t quite there yet? Maybe they’re 5 years out, maybe they’re 10 years out. What are the things they should be thinking about and preparing for as they come to terms with the fact that they’re not going to work forever? Should it be marketing? Should it be client service? Should it be growing as fast as they can? What are your recommendations for those folks?
RC: There’s a lot there. First, an exercise I went through and I recommend everybody go through this, is do an organizational chart of what your perfect business looks like. Assume you’re going to stay in the business, you want to grow, and you’ve got a 5- or 10-year time horizon. Go through and say, “Hey, if I were to have the perfect business, here’s the services I want to offer, here’s what it would look like, and here’s what I would fit in the org chart.” Even if it’s just you, and then you write your name in every single box, and it helps you start attracting really good stakeholders that share your vision and even, I would say, hire ahead of the growth, because you’ll grow into them much faster if you have these stakeholders actually on your team if you can afford it. Hire as many as you can afford, because there’s never been a better time to invest in your business.
Also, have a very clear career path for how they can possibly earn equity, buy into the firm. What do they need to do to economically move up and have success? Who are your partners going to be? You cannot do it alone. Are you going to partner with a Fidelity, a TD, an LPL, Commonwealth, Raymond James, Carson, Focus, HighTower? There are a lot of different options out there for partnering, but it’s going to be driven by the value proposition you want to offer. Then, the final decision is, do I want to do it on my own, or do I want to try to plug in? Because you would have different kinds of partners. Some partners are plug and play, and others… Dynasty does this, where they’ll just help you go out and build the pieces. The custodian’s here, the record keeper’s here, trading is here, but not being intentional about it, Claire, you will not maximize your future value.
Separate yourself so you can get away from the whirlwind and actually be thinking about your business. Make no mistake about it, there has never been a better time to prepare for all these clients that are going to be in play, and it’s going to be huge. The analogy I use, build the ark right now. We’re building lots of them. We’re putting our energies, actually, not even into growing. We’re growing fast, but our energies are going into… What’s this ecosystem look like? I love what Jeff Bezos said. There’s a great interview. It’s called the Washington Economic Forum. It was October of last year. I watched it three times now, and I pick something new out of it every time, but he said someone congratulated him on a fantastic quarter and he thought to himself, you know, that quarter was baked three years ago, and it totally resonated with me because things that we’re delivering now we started on two, three, four years ago, and things we’re delivering in 2021 we’re working on today. It does take a massive commitment to plan and think about what that looks like.
CA: That’s great. Fantastic advice. You’ve given us so much to work with here today. One last question. If you were meeting with an advisor who knows they have to start this process, knows they have to start looking for the solution, what is the one recommendation or the one piece of advice you could give to that advisor?
RC: This is going to sound very self-serving, but I would do two things. One, I would plug into two conferences. I think Barron’s and our conference… We’ll have 1,200 people next week. We have very little sponsorship stuff, and immerse yourself into what the next generation of value proposition looks like. Barron’s is fantastic as well for this, and there’s lots of other good conferences out there, but I mean, as far as what’s coming down the road… The other is commit six months and do deep due diligence. Go out there. Even if you have zero desire to join somebody, understand what your competition is and what’s coming at you, and you may end up doing a 180, going into it just to learn. You may end up finding someone you may want to partner with. I’d make a list of, okay, what do I want? Who could fulfill this? Take the time to slow down so you can speed up.
CA: Thank you so much for being on the show today, Ron, and I’m going to link to the Excel conference below. I’ve been to every conference in this industry, and that’s one of the very best ones. For all the advisors out there that want to attend, you can go to the show notes, click there to learn more. Thanks so much, Ron, for being on the show. You’ve given us a lot of great things to think about. We appreciate it, and best of luck to you and your future.
RC: Thank you so much, Claire.
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Claire Akin runs Indigo Marketing Agency, a full-service marketing firm serving financial advisors. It’s her mission to help independent financial advisors help more people through their incredibly important work. Claire is a former Investment Advisor Representative who holds her MBA in Marketing from the Rady School of Management at UC San Diego as well as a BA in Economics from UC Davis.