Selling Your RIA: Sales Process and Pre-Sale Planning

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Selling Your RIA – Part 1: Sales Process and Pre-Sale Planning

With the year after year record number of transactions involving the sale of Registered Investment Advisors (“RIA”) and the continuing consolidation of the industry we thought we would look at some of the key points of the sale process.

The Industry

RIA’s are a hot commodity and in great demand. With approximately 165 RIA M&A transactions through the third quarter 2021, nine months of 2021 has already surpassed 2020’s 159 transactions and the RIA M&A activity (by # of transactions) has increased in each of the last eight years (Devoe & Company).

Not only has the number of transactions increased in recent years but the makeup of the buyers has changed. No longer is it the big wire houses acquiring the RIA “book” or transactions simply the mergers of RIAs to “bolt-on” additional business, what we now have are firms that are “Active Acquirers”, with sufficient deal capital, quality client service offerings, modern infrastructure, efficient operations, tested integration plans and yes attractive valuations to help attract and close deals with sellers. These firms are in the business (or it’s a large part of their business) of acquiring RIAs. These Active Acquirers are both public and private companies and are efficiently built to acquire RIAs and merge their practices so that the client and advisors are comfortable with the transaction and new combined firm. The Active Acquirer does multiple transactions a year, have a M&A and transition team in place to guide the entire process from identifying target firms, preliminary offer, due diligence, negotiations, final offer, closing, and facilitate the integration of clients, personnel, compliance, operations, finance, and all aspects of the transition.

These Active Acquirers are built to move through and execute these transactions, but are you?

Do We Sell?

The decision to sell will require a review of your firm valuation and how to monetize it, current succession plan, future sustainability, and competitive edge or limitations.

Your internal plan and the industry environment have to be looked at together:

  • Succession Planning – From this plan ownership can discuss how to monetize the business they have created and transition clients and advisors for continuity in service. What is your future like without a sale? Can the next generation of professionals afford to buy your business? Do you sell all or part of the business to a third-party buyer? Are you confident in the “next-generation” ability to retain clients and generate value? Etc.
  • Competition and Scale – As the RIA industry consolidates and Active Acquirers continue to grow rolling up client-facing professionals under a scalable infrastructure of reporting, compliance, technology, employee retention etc. Can you continue to compete? And at what fee level will you balance client retention and profitability?

Sale Goals

Discussions regarding succession planning and sale consideration will lead to establishing your goals from a sale.  While there will be many factors that lead you to establish your goals and each sale transaction and firm is unique, some common areas where you should establish and prioritize goals, while considering your bid/ask parameters may include:

  • Valuation
  • Client service and retention
  • Employee careers and retention
  • Culture
  • Post deal roles
  • Deal terms
  • Realization and risk of monetizing
  • Post sale obligations
  • Location/Real estate
  • What does “integration” look like?
  • Expansion of expertise
  • Expansion of outreach
  • Improve/scale operations, technology, compliance
  • Etc.

Deal Team

(see Pt. 2 of Selling RIA for more detail)

Going “to the market” and selling your firm is a time-consuming exercise with many fundamental decision, technical decisions, starts and stops, stress, frustration, excitement and satisfying experiences along the way.  Establishing your “deal team” and a quarterback is essential.  A well organized, thoughtful, passionate and experiences team can help plan, guide, service, communicate and execute the sale.

  • Point Person/ “Quarterback”- Most likely someone from inside the organization. Does someone on your team (Founder, CFO, President, etc.) have the ability and capacity to quarterback the process. The Quarterback will be the liaison and gather information for the buyer, lawyers, accountants, bankers, vendors, and across all departments (finance, HR, compliance, technology, etc.).  A strong grip on the flow of communications, steps in the process and continuous review of deal documentation and changes will be a requirement of the QB role.
  • In House Capacity– Determine who in ownership/management will be involved in the negotiations, decision making, document review and closing. Information and data gathering will be needed from all areas of the business, management, department heads and staff will be required to participate in due diligence and reciprocal due diligence (see below)
  • Attorney– Your attorney should be experienced and well-staffed for these types of deals. Experience is helpful in deal structure, creativity, and fully understanding the buyer’s organizational structure, capital structure and your integration into it.
  • Investment Banker– An experienced and well-staffed banker should know your market and your industry. The banker can help you determine a valuation range and introduce you to the market, bringing appropriate potential buyers to you. Your banker should be a resource and support during the sale process. The seller should consider the pros and cons of engaging a banker during the pre-sale planning.
  • Accountant- Your accountant should review the LOI, deal terms and closing documents to advise and help you understand the value and risk of the deal as well as the tax treatment and after-tax valuation.

A talented, trusted, and responsive deal team will make negotiations, due diligence, valuation, closing, and integration all move through the process in an efficient and informative way with no (or few) surprises.

Going to the Market/Premarket Planning and Review

Going to the Market

This is a big step and please do not forget the old adage “You only get one chance to make a first impression.”  Going to the market will give you a sense of the interest in your firm from potential buyers, the valuation they assign your firm, the type of firm that is interested, the integration plan, what the future may look like for you and your clients, and the preliminary terms of sales proceeds and other compensation. While most RIA are anxious to know this and “test the market” and investment bankers do a great job in preparing and introducing the market to you, we ask that you do not rush here.  So, it’s a fine line, the market is hot, the phone is ringing and why not rush, well “You only get one chance to make a first impression” you do not want your banker, the Active Acquirers, and the rest of the market to make a preliminary valuation of your firm before you yourself have thought about all the things that create value. If the markets initial valuation is significantly less, then the value you determine (including “Hidden Value”-see below) then you are fighting an uphill (maybe a steep one) valuation fight from your first presentation booklet and perhaps the first letter of intent that is delivered to you.

Pre-Market Planning and Review

Be ready!! We told you the market is hot, you are about to enter the market, but we also told you “You only get one chance to make a first impression”.  Pre-market planning and internal review is critical. As a seller you must be ready to present what it is your selling and the value of your business. Time spent “in-house” with your owners, department heads, advisors (accessing client services and likely retention) and finance team may help determine “must-have” and “like to have” deal terms and a valuation you are comfortable with.  Here an outside consultant may help lead the charge (when management is understandably busy servicing clients, “doing what they always do” and generating revenue).  Pre-market prep will help get books and records, operations, compliance, client list and service expertise in order, to properly present your firm to a banker or potential buyers. Review your business, not just the most recent year but the past several years. You should understand your financials, source of revenue, profitable services and advisors, client demographic and history with the firm, historical growth and changes to aum, revenue, and EBITDA.  What is the driving force of the changes to the aforementioned items year over year and the trend? Review vendor contracts, subscriptions, leases and other commitments for cost, terms, and renewal dates. Understand the non-financial areas of your business, how does your client reporting, technology and employee benefits compare to the industry, have you had any recent regulatory or legal matters to disclose.  Is your operation and compliance manual up to date, reviewed and tested?   Prepare to present a review of your investment program, the performance, the asset allocations, investment platform (and supporting due diligence), client unrealized gains etc.  Highlight your people, your most valuable asset and an intangible value, what are individuals’ roles, titles, and tenure, what is the firm turnover, networking/marketing plan, what is your compensation model and how does it compare to the industry.  Additionally, review client relationships/advisor, size of client teams, in-house expertise, and licenses.

This is also an opportunity to hone your story, owners, management, and colleagues should be able to present your firm, your services and what makes you special.

A constructive review of your financials, personnel, investment program, operations, compliance, and infrastructure can help present your firm in a way that is understandable to buyers, highlight synergies, proforma revenue and cost, presenting those that would transitions or be eliminated.  Items unique to your firm including client or service niches, advisor educations, expertise, customized reporting, or networking channels all can add value and should be presented to a buyer. Presenting history of growth, organic growth plan and execution of current or prior strategic plans all demonstrate that you are not just a “bolt-on” business but one that will grow with the acquirer.  This presentation of your firm will bring the numbers to life and highlight the Hidden Value in your firm.

“Meet the Buyers” and Letter(s) of Intent

As you meet potential buyers your preparation will help you to get to discussions and documentation that test whether the buyer can meet your goals, including providing appropriate value, satisfactory deal terms, the necessary work environment, services, integration plan and a satisfying future for your ownership, employees, and clients.

As buyers present preliminary letters of intent, your deal team should begin to review and compare them against each other and against your goals.  LOI’s should not be taken “as delivered” they are to be negotiated. As a buyer present its LOI and begin to negotiate eventually they will ask for exclusivity.  Exclusivity is a valuable commodity and will take your firm “off the market” (for some time) and begin a deeper dive into due diligence, this will cause you to lose momentum with other buyers and begin to use more and more of your staff and deal team resources.  Before entering exclusivity, you should be fairly confident that the buyer can meet your goals and the LOI’s should be complete (or very close—I would recommend the LOI, and exclusivity be signed at same time).  The final LOI will detail the deal terms and be the outline for preparing your closing documents. It is very important that the LOI represent the business decisions related to the offer (value, cash vs. equity, future payments or earn outs, employment contracts, integration plan etc.).  The LOI should also discuss legal and accounting issues (class or rights of any equity, asset vs. stock purchase, timing, lease, or other commitment transfer, etc.).  Due to the legal and accounting significance of the executed LOIs (and exclusivity document) it is important to have your deal team involved in the LOI negotiations, especially your attorney who will use it as a basis to draft and review closing documentation.

Due Diligence and Reciprocal Due Diligence

(see Pt. 3 of Selling RIA for more detail)

A potential buyer will do extensive due diligence on you. A buyer will see value if you are prepared for due diligence and demonstrate you are organized, run an efficient business and that you know your business.

Due Diligence

The due diligence request and process will span across your entire organization with a look back into your history and projections forward.

The buyer’s due diligence process will include reviews of:

  • Financial statements
  • Client retention
  • Client profiles and data
  • Historic/source of growth
  • Employee files
  • Compensation/benefits
  • Real estate/lease
  • Client reporting/operations
  • Investment platform
  • Vendor contracts
  • Compliance policies
  • Legal/regulatory matters
  • Tax filings
  • Other items across finance, technology, operations, advisor relationships, services provided
  • Etc.

The buyer will use their due diligence to verify the representation you made during the LOI process and negotiation and more importantly to determine the value or an offset in the value negotiated.  A buyer will look to see what integrates and if their pro forma of the combined business provides the buyer with value (and are they acquiring any Hidden Value.)

Reciprocal Due Diligence

Just as important is the seller’s due diligence on the buyer or reciprocal due diligence.  Your “deal team” will want to look at the buyer’s financials, growth plan and ability to execute on that plan.  Reciprocal due diligence will help the seller to verify how their firm, people and clients will integrate into the larger firm and the risk of the buyer not being able to satisfy the financial commitment of the deal terms. Understanding and verifying the firm culture, investment philosophy, strategy, capital structure, and balance sheet are all a part of the seller’s reciprocal due diligence. Your deal team should review, identify, and consider not only the benefits of the transaction but any risk or obligations of the parties to perform and satisfy the agreement.

The seller’s due diligence process will include reviews of:

  • Strategic plan and vision
  • Capital structure
  • Financial statements
  • Loans and terms
  • Investment philosophy
  • Compliance
  • Comp. structure/Benefits
  • Client reporting
  • Organization chart
  • Systems /Technology
  • Interview recent acquisitions
  • Integration plan
  • Etc.

If you have a service, platform, operation, or expertise that is greater than that of the buyer, you have a Hidden Value that you uncovered during reciprocal due diligence, and this can strengthen your negotiations.

Valuation and Hidden Value

(see Pt. 4 of Selling RIA for more detail)

We have all heard about valuation as a multiple of EBITDA and we have recently seen ranges reported as wide as 8x-18x (even 20x!)  EBITDA? Being on the low end of the range can cost you significant value in a transaction.  But why is there a range?  Why do some companies get the higher end of the range while others the lower end?


Perhaps the most important thing in your preparation, before going to the market, is to understand not only the appropriate valuation range of your business but the value that will meet the expectation and acceptance of the business owners.  The market will dictate much of the valuation but as stated above there is a wide range that may be offered for your firm and most likely a narrow range that is acceptable to you.  While many factors can determine the value (see below) the three broad areas of determining value are 1) Growth 2) Profit and 3) Risk.  A buyer will spend much of its due diligence reviewing your financials, historical growth, client demographics, fee schedules, margins, fixed vs. variable cost, revenue concentration, investment performance/philosophy, compliance program, marketing plan, technology, and operations etc. to model and assess your growth, profitability, and risk.  The buyer will not only look at these items (and more) over recent history, but they will model and proforma your business, projecting into the future and more importantly using a integration of your business onto their combined firm which will benefit from scale, economies, operation/technology efficiencies, overall growth strategy and other benefits of the buyer’s business model.  Be prepared by understanding your income statement and the drivers of revenue and expenses, as well as making integration assumptions based on your meetings with the buyer to support your valuation position.   Support for your historic growth and execution of prior growth plans along with mitigating risk such as advisors/client turnover, legal or regulatory matters will support your valuation “ask” as you negotiate.  Hidden Value are those items deeper in the numbers or perhaps non-financial elements of your business that the buyer hopes to find in due diligence or in combination with the larger firm, you should prepare by identifying those items in your own firm which the buyer will most likely value.

Hidden Value

Where will a buyer find your “Hidden Value”, or more importantly will you find it first and be able to present it and “sell it” so that you realize the value you have created. Above we mentioned growth, profit and risk as the key elements that impact value.  A buyer will have those elements in mind not only when they simply apply a multiple to your EBITDA, but as they review all areas of your business.  The buyer will review your firm through the lens of a new combined firm, growth and profitability will not only be of your firm but that of the combined firm.  For example, do you have an investment platform, industry expertise, financial planning model, or an operation efficiency that they could incorporate, scale, and use or cross sell across the larger firm.  Expanding services, operations or intellectual knowledge across the company can have an immediate and exponential impact on both growth and profitability.  Does your investment philosophy, compliance program, client reporting, etc. bring additional risk that needs to be mitigated or do they bring “better practices” that will reduce risk across the firm?  Understanding not only the value of your offering but how it “stacks up” inside the combined firm is important to the seller to gain some edge in the valuation negotiations.

Hidden Value, some areas to look include:

  • Profitability and Revenue
  • Growth
  • AUM
  • Expertise
  • Clients and Advisors
  • People
  • Compliance
  • Investment Platform
  • Operations
  • Infrastructure
  • Scalability
  • Deal Terms

Sellers should be prepared to properly present their business and Hidden Value, to highlight and enhance the quality of what you are offering and the value of what you are selling.  Your Hidden Value will add to the profitability and competitiveness of the combined firm, and you should be paid for that.  As you get closer to finalizing deal terms knowing your value and negotiating that value for the final documentation, is a crucial step in the transaction and in reaching a value that meets your goals.

Deal Terms, Integration Plan and Retention

Deal Terms

Although deal terms and integration plan are quite different, they are presented together here to remind the seller that the final deal term and integration plan should be negotiated together throughout the sale process as the seller works toward the final deal and closing.  Deal terms and a successful integration plan are essential to the seller realizing your valuation and achieving your goals.  The final documentation should be reviewed thoroughly by your deal team and accurately reflect the executed letter of intent and supported by any findings, changes or clarifications made and negotiated during due diligence.  Final deal terms as outlined in the LOI and further clarified or adjusted as a result of due diligence, and reviews by ownership, legal and accounting will form the final closing documentation.

Integration Plan

Throughout negotiations you should consider how your clients, advisors and employees will integrate into the new firm.  This is important not only in determining such things as culture, valuation, roles, career paths etc. but continuity (or enhancement) of client services and client retention.  Many deals have valuation (i.e., a target/performance “bonus” or other compensation) tied to or effected by client retention.  The seller should not only have integration discussions during negotiation and drafting but develop a clear map or plan to understand how their firm gets combined with the buyer and what the client transition experience will be.  The seller should negotiate on their behalf so that they can fairly represent the “new combined firm” and its benefits to their clients and employee to gauge retention pre-closing.


The timing of when to talk to employees and clients is a very important step and differs from firm to firm.  Many believe talk to employee early to get feedback even before starting a sales process and see what the firms “temperature is” and what is important to employees, advisors, and their clients. Advisors should listen to clients, as the industry continues to consolidate, clients may welcome the discussion to explore client expectations regarding a business combination.   Ask clients what they think of a larger organization and what is important to them in a transition.  Clients are usually concerned with keeping their advisors and teams, resistant to fee change, and will welcome expanding services if they can keep current services and investment platforms.  Listening to the advisors and clients will help develop the parameters needed in the combined firm to keep retention rates high.   While you’re negotiating with the buyer, work with your buyer, they most likely have been through this before and of course have an interest in your client retention, what have they done in past that worked? How is the message of a sale delivered to employees and clients? Retaining key advisors, employees and services is critical to retaining clients and needs to be a focus during pre-sale planning and negotiations.  The more the seller knows pre-closing regarding employee and client needs or fears, the better you can help service those needs, mitigate fears, deliver the information at the appropriate time, and maximize retention.

A key part of the process, and part of the closing documents, will be client consent to transfer their advisory agreements to the buyer/combined firm, depending on your current agreements this may require a positive or negative consent from your clients.  Be prepared to satisfy the legal/regulatory requirements of consent, and the buyer’s expectation of delivering client consents.  The process to prepare and collet consent is a “delicate” and important step, advisors and clients have to be prepared to communicate and execute the consent process.

Closing Documents and Closing Date

Closing Documents

As you near the closing all the work and negotiations will start to form the closing documents.  The documents should be consistent with the LOI, any points negotiated post LOI, the business “deal” and the legal agreement.   Documents need to be thoroughly reviewed (and there will be multiple drafts and redlines), the seller should have a clear understanding of the deal including, valuation, after-tax consideration, contingent considerations, equity restrictions, review of defined terms, risk, obligations, integration plan, representations, and warranties, etc. Prior to signing the parties will need to provide schedules to the closing documents, these schedules are exhibit (i.e., client list, financial statements, employee list, lease, vendor, software agreements, etc.)  to various sections in the documents and are an important part of the closing documents.  The gathering of the data to support and draft these schedules is a time-consuming process and can involve much of your deal team and organization.  During due diligence and document drafting the inventory of these schedule will start to emerge and it’s important to see how they factor into the agreement and that they are developed along with the working drafts.

Closing Date

As far as mechanic go, this should be the easiest day of the process.  At this point all negotiations are done, due diligence is done, documents have been reviewed and rereviewed and the parties are ready to sign, and funds transferred.  With proper planning, active involvement throughout the process and continuous communication between the parties, the mechanics of closing should be easy, and the emotion of your closing should rule the day.


RIA owners and management teams should take the time to prepare for “going to market” and know what their valuation target is, where to find Hidden Value, what buyers will be looking for and how to present it.  The time you take up front may make the diligence process, negotiation, deal terms and valuation all go smoother and more in your favor.  You know your business, but you need to take the time to plan on how to present it to bankers and potential buyers.  You will be approached by teams of people who will want to review every aspect of your business, be ready to show them you are prepared and show your business in the truest and best light to get the value you have created.

Prepare Now

Prepare now, while the market is hot.

Please see our related blog posts on this series!

Selling Your RIA
Part 2: Building your Deal Team
Part 3: Due Diligence and Reciprocal Due Diligence
Part 4: Valuation and Hidden Value

Simply stated, how long will demand last?

Help is Available

We know you are busy advising clients, running and growing a business, if we can help be a seat at your table, roll up our sleeves and work with your management and staff to presale prepare please contact Four Leaf Business Consulting, see  “We will help you consider, prepare and analyze the sale of your business, working with and for you while you concentrate your efforts on servicing your clients. “