PANC 2019: Learning From Adviser M&A Transactions

Why two advisory practices decided to sell and become part of a larger benefits broker and a wealth management company.

From left: Dick Darian, Wise Rhino Group; Daniel Bryant, Sheridan Road Financial; and Ty Parrish, Cerity Partners. Photograph by Matt Kalinowski. 

From the observations of Dick Darian, founder and CEO of Wise Rhino Group, all financial service firms are under pressure. And the result is consolidation.

Darian was moderating the “Learning From Adviser M&A Transactions” panel, the first day of the 2019 PLANADISER National Conference (PANC) in Orlando, Florida. “The brokerage and recordkeeping industries are in the late stages of consolidation, and we are starting to see it pick up among wealth management practices,” he said. “Within the advisory space, there are about seven large benefits consultancies, such as Mercer, and 30 boutique firms, which, together, manage about 80% of the retirement planning assets. So, we are starting to see merger and acquisition [M&A] activity in the mid to small retirement plan advisory market.”

As to why Blue Prairie Group decided to form a strategic partnership with Cerity Partners, a wealth management firm, “We felt the pressure of consolidation and wanted to expand our referrals beyond recordkeepers and ERISA [Employee Retirement Income Security Act] attorneys,” said Ty Parrish, a partner with Cerity Partners and formerly managing partner of Blue Prairie Group. “We were the missing piece for Cerity, which looked attractive to us, as they were growing 30% a year, while we were growing 15% a year.”

Sheridan Road Financial decided to become a division of benefits broker Hub International last year after foreseeing a shift in the retirement planning industry, said Daniel Bryant, president of national sales, retirement and private wealth at Sheridan Road. “Five years ago, we anticipated a tsunami of change driven by six factors,” Bryant said. “First was the embracing of behavioral economics. Second was the convergence between health care and financial care; it became real to us in every client meeting. Third was the changing role between the employer and the employee; employers now feel the need to provide complete benefits, including financial care and health care.

“Fourth was the increasing use of technology and big data,” Bryant continued. “The recordkeepers house an enormous amount of data. Demographics have changed. Millennials now expect their employers to provide financial wellness. And, lastly, consumerism is a lot different today than it was 10 years ago. So we asked ourselves, ‘Who has the data, the financial wellness and the capital? Who could offer the financial wellness endgame?’ We discovered that Hub, a benefits broker, was looking at the same things we were and was speaking a lot of the same language.”

Hub’s connections were also critically important, added Bryant, who noted that the company has 250,000 corporate clients and 2,000 salespeople. “Hub’s reach in this country is massive,” he said. “The importance we see financial wellness as having for plan sponsors and participants ultimately convinced us this was the right way to go. The deal has given us tremendous cross-selling opportunities. In fact, I am now able to close deals on the phone with existing Hub clients. The dollars to be had across the benefits spectrum are huge. Retirement planning is only a small part of that.”

As to how merging or being purchased has changed how they do business, Parrish said, when joining forces with Cerity, Blue Prairie maintained its private partnership status. “It has remained a meritocracy where each partner’s opinions matter, but, instead of having four partners, I now have 35,” Parrish said. “That slows down decisions a bit, so instead of being able to turn a speedboat, we are now turning a barge, and when making proposals to the other partners, you have to be more thoughtful about ROI [return on investment].”

Bryant said Sheridan Road’s decision to become part of Hub was absolutely the right one, as plan sponsors now think of their benefits as interconnected. “In the last 36 months, financial wellness has become the second thing coming out of the mouths of retirement plan committee members,” he said. “How they look at benefits has dramatically changed their total benefits spend.”

According to Parrish, merging with a wealth management firm has enabled his firm to seek out clients’ C-suite and pick up additional revenue from those executives seeking help beyond their 401(k) holdings. With just one client, the firm has gone from a $75,000 retirement planning retainer to a $1 million relationship, he said.

As to how to plan for a sale or a merger, Bryant said it will take between six and nine months to raise outside capital or to sell one’s business. “Start by putting together a virtual ‘data room’ of the information from all of your contracts from the past three years. Analyze your margins, know your cash flows and cycles, and look at five-year projections,” he said. “[A potential buyer] will send you a detailed due diligence request list, because it wants to know all of your liabilities. When deciding who you want to sell to, look for the best fit, and don’t overlook their culture.”

Bryant noted that on the cusp of one’s retirement is not the right time to sell a practice. But he also said the time to sell is now. “We have had an 11-year bull market. We are at the top of the market, and there is a lot of money on the sidelines.” He advised retirement plan advisers thinking of selling their practice to do so while there are more buyers than sellers and the adviser can command a premium price.