I have a confession to make. After a career out of College as a Broker, Financial Planner and Branch Manager, I sought out the world of Banking, culminating as an Officer with a Bank, overseeing Commercial Banking Clients in the Philadelphia market in a new business development role.
It wasn’t just any Bank. It was Commerce Bank, the brain child of the Bad Boy of Banking, Vernon Hill. Some on you will know the name, some of you won’t, it’s easy enough to Google nowadays. Bottom-line, Vernon was an aggressive marketer who created and implemented things that are commonplace nowadays (Night and weekend Branch hours, Coin Machines in Banks, Cool-looking Branches, Clever Advertising), and he was very aggressive in doing transactions, both Buy- and Sell-, and layering on products and services. Not to say I reported directly to Vernon – I didn’t – but he touched everyone and everything at Commerce from the Tellers to the C-Suite.
Life was good and I enjoyed my work. But my life changed dramatically in 2012 when a recruiter called me about an opportunity with a newly formed M&A Advisory Firm called Gladstone Associates. Gladstone was borne out of a Financial Services Executive Search Firm (DAK Associates) and had the crazy and novel idea of offering sophisticated investment banking services to an under-served market: sub-$50m revenue RIA’s specializing in Wealth & Asset Management, with a sweet spot serving the $2m-$20m revenue crowd. We help to strategically advise clients on both sides of the transaction when it comes to Buy-Sell-Merge opportunities with RIA’s, all over the country.
As a former Banker who has engineered dozens of successful transactions in the space with diverse Buyers such as National Aggregators, Private Equity Firms, Mega-RIAs, Broker-Dealers, Asset Managers and of course Banks (several successful Bank transactions under our belts), I’ve learned a few things. My comments are geared to the Community & Regional Banks and S&L’s in the $500m to $10B asset size which is where Gladstone spends most of our time helping Banks with Buy-side campaigns, and representing Sellers. Here are Ten Things I’ve Learned regarding Banks buying RIAs:
- Banks got into the Wealth Management business in the 80’s, 90’s and 2000’s for the right reasons (additional non-Bank Fee Income, expanding services to clients, increasing wallet share, stickier relationships, cross-selling synergies). Unfortunately, the Third Party “Broker in the Bank” programs didn’t always work out – for the Bank – and many Banks bought Asset Managers instead of Wealth Managers – big difference; or they bought the wrong Wealth Manager.
- If the commitment to Wealth Management isn’t FULLY EMBRACED at the CEO and Board Level- fuggedaboutit, as we say in Philly
- A very clear vision of where the newly acquired RIA fits in the Bank ecosystem must be clarified. There’s no “one size fits all” answer here; but are you seeking what Gladstone calls a Platform Company that truly owns Wealth Management, or integrating it into existing Wealth or Trust entities in your organization? Do you want that one great firm or are you a Serial Acquirer? Why are you doing this?
- Client Demographics are key. If you’re a Business Bank with a competitive offering on the commercial lending side, buying an RIA with 95% Retirees as clients isn’t going to move the needle from a synergies’ perspective.
- Investment Process and Financial Planning approaches are where deals oftentimes break down. Intimate, detailed review, sample portfolios and historical performance are critical drivers to success post-transaction.
- Casting to Culture is huge. Many RIAs will entertain conversations with Bank Buyers but very few are a cultural fit. “Respecting the House” – ie, really wanting to be part of your Bank brand and all that entails must come through loud and clear or there will be issues that hinder growth down the line. The other side to that is, along with buying Clients, Assets, Revenue and Margin, you are acquiring both Talent and Capabilities that can turbo-charge the acquisition and provide Culture Bearers for the future, and enhance the equity value of your institution.
- Respect the entrepreneurial nature of the principals of the firm you are buying. While as stated they must respect the house, you must respect the Entrepreneur; not resent or stifle what made them who they are; and have an earn-out or equity plan in place that rewards growth.
- Really understand Valuation and Deal Terms. It has been and will continue to be a Seller’s market; there are a multitude of Buyers and a lot of noise. With that said there are table stakes to play in this market, replete with premiums and discounts, speedbumps and traps. Buying right will help smooth out future issues; buying wrong is hard to overcome. This has nothing to do with price, by the way; sometimes it’s worth paying up, many times it’s better to take a pass at any price.
- “Synergies” don’t happen by themselves. There has to be integration up and down the line, skin in the game for all parties, high-level and ongoing communication of services and value propositions, training and knowledge of services on all sides of the house in order to maximize the combination.
- The RIA creed of Discretionary Advice, Customer Care, Risk Management, Transparency and Compliance is in complete alignment with the tenets of your institution. Not to mention the predictable, Annual Renewable Revenue business model that RIAs bring to the table!
In summary, if you don’t have outstanding Wealth Management capabilities in your Bank; maybe have the wrong model; or want to expand what you have in place; it may be helpful to engage a Recovering Banker with over a dozen years in RIA M&A. Mike Bilotta is the President of Gladstone Associates LLC (MBilotta@GstoneLLC.com).