Dick Darian
Dick Darian
It may seem counterintuitive, says Dick Darian, CEO of Wise Rhino Group, a retirement adviser mergers and acquisitions (M&A) advisory firm, but many of the practices with the highest revenue, best margins and strongest capabilities and brands are also the ones that have gone to market to seek partners.
Wise Rhino Group, whose offices are in Charleston, South Carolina, and Lake Tahoe, Nevada, has represented more than 60 sell-side and buy-side retirement firms in its first three years. In the process, Darian has found “it’s actually the firms that are the most successful and resilient—that could survive and thrive as independents—that are merging their businesses.” In a recent conversation with PLANADVISER Managing Editor Judy Faust Hartnett, he shared more insights into today’s industry consolidation.
PLANADVISER: What are the key considerations for a retirement plan practice when it’s evaluating whether to pursue a merger or acquisition?
Dick Darian: The first step for retirement advisory firm leadership is prioritizing the “business side of their firm,” beginning with building a process for clarifying the best strategic alignment for the firm partners, staff and clients. We’ve found that often the challenge here is helping talented retirement advisory entrepreneurs understand that the evolving broader marketplace may require a change to the very approach that has led to their success.
The next step is to identify the different go-forward options or paths—status quo, merger, acquisition, sale to a partner—and work toward “predicting the future” by using available data and insights, and project where each path will lead the firm in key areas such as culture, practice and financial.
If a firm decides to seek a partner, we suggest that it focus on the “table stakes” that best align partners, staff and clients with regard to leadership, vision and commitment to the business. This includes growth engine capabilities; operating company and practitioner platforms; participant engagement; industry, plan sponsor and participant brand; potential for partner and staff role-expansion; and proven post-merger integration experience.
Under each of these criteria, there are many important questions that need to be answered. For example, the monetization of the plan participant will be critical to the revenue growth component for most retirement advisory firms in the not too distant future. It’s important to go deep with a potential partner to gain an understanding of that firm’s commitment in this area and, importantly, its progress regarding platform technology and participant services, as well as wealth advisory.
PA: Do you have a sense of what the acquired companies’ experience has been?
Darian: We conduct formal post-acquisition surveys with our clients after one year and then after three years post close. The results reflect that most partner-acquirers have met the expectations of the advisory firm sellers. One of the most positive areas is client growth, especially within the insurance brokerage firm vertical where the benefits and property and casualty cross-selling has been highly successful.
On the registered investment adviser [RIA]- acquirer side, we’ve seen significant positives in terms of helping to build a bridge from the acquired firm’s retirement business through advice and/or managed accounts to engage the participant toward broader wealth advisory services.
PA: What have the challenges been for the acquired firms?
Darian: Before merging with a larger partner, most retirement advisory firm entrepreneurs have run their own independent business for many years, with no reporting responsibility. There is certainly a change when you now have a “boss” again. However, most of the acquiring firms do not micromanage the day-to-day activities of each office. They have bought the business to assist with strong growth, so the attitude is “Keep doing what you’re doing,” and “How can we help?”
On the practice support side, it very much remains a work in progress for the acquiring firms building out the necessary scaled platforms to engage and monetize plan participants as to advice, managed accounts and wealth advisory.