Advisors who think about acquisition only as a client grab miss the most strategic reasons for pursuing a deal.z_wei/iStockPhoto / Getty Images
Buying a book of business is appealing to many wealth advisors. On paper, it’s a shortcut to growth: acquire a set of clients, increase your assets under management instantly and reap the benefits of scale.
But here’s the uncomfortable truth: buying a book rarely solves a growth problem. In fact, it often exposes it.
Growth is more than just clients
The instinct to focus exclusively on acquiring more clients is understandable. Clients drive revenue. Yet, advisors who think about acquisition only as a client grab miss the most strategic reasons for pursuing a deal.
Smart acquisitions give advisors access to specialized talent, new capabilities, geographic reach, or a stronger brand. Those levers create long-term value. Simply adding names to a client list rarely does.
For practices that struggle with growth, the problem runs deeper than client volume. A purchased book will not deliver the expected results without addressing those fundamentals. For example, do my existing clients provide referrals? Does my client service model reflect the value I’m adding? Do I have the team and capacity to take on new relationships? These are all valuable questions to ask before embarking on an acquisition deal.
The limits of buying growth
The most common failure in wealth management acquisitions is confusing revenue for growth. Although buying a book can increase the top line, it won’t fix a practice’s structural weaknesses.
An advisor whose organic growth funnel isn’t working can try to plug those issues with a temporary patch. But without the right people in place, scalable processes and a service model that resonates with clients, eventually, the cracks reappear.
And often, they do so at a greater scale. You inherit clients you may not be able to serve effectively, and staff who may not align with your culture. If your practice is under strain, doubling its size only magnifies the problems.
The value of relationships
Another misconception worth addressing is that advisors can buy a book from a stranger and integrate it instantly. In reality, the best acquisitions are born out of long-standing relationships.
The practices that integrate seamlessly are often those in which advisors already know one another, have worked together on client cases, or share a vision for the future. Trust has been built over time. Without that familiarity, integration becomes riskier and more expensive.
Relationships also help advisors understand the book’s true quality. A spreadsheet doesn’t capture client loyalty, staff competence and cultural fit. They’re revealed through time spent getting to know the people behind the business.
Beware the rule of thumb
When a book of business does come up for sale, many advisors fall into another trap: valuing the deal based on “rule of thumb” multiples: pay X times revenue, the thinking goes, and you have struck a fair deal.
The problem is these rules ignore what drives value: your growth strategy and the synergies you can create by combining practices.
Any multiple is too high if you lack a clear plan for integrating and growing the business. On the other hand, if the other practice brings capabilities your clients need or opens a new market you’re well-positioned to serve, you may be justified in paying more.
The point is, multiples don’t determine value – strategy does.
Growth still requires building
Acquisitions can be powerful. They can accelerate growth, deepen capabilities and transform a practice. But that can happen only when approached with clarity and discipline.
If your practice isn’t already built on strong foundations, such as an effective growth funnel, capable people and scalable processes, acquiring a book of business won’t solve the problem. At best, it will postpone it; at worst, it compounds it.
Joe Millott is a partner at Fort Capital Partners, an independent investment bank that specializes in wealth and asset management mergers and acquisitions, with offices in Vancouver, Calgary and Toronto.