Money Matters

Top Questions to Ask When Your Financial Firm Is Bought Out

There has been a recent “notable uptick” in merger and acquisition activity among wealth management firms across the country, with many investors focused on registered investment advisors. With new sales continuing to be announced, many wealth management clients may soon find themselves navigating through a transition if their trusted advisory firm is bought out. 

As of October, there have been 226 wealth advisory firm acquisitions in 2023, and projections indicate the pattern will remain on-trend. Additionally, according to a study by M&A consultant DeVoe & Company, many wealth management firm CEOs are reaching retirement age, with 45% of advisors stating they are “certain the next generation of advisors could not afford to purchase their firm.” As chances of internal succession decrease, there are predictions we could see a steady stream of 300 transactions annually

The Effects of an Acquisition

From more diversified investment options to new technology, the benefits clients gain when a merger occurs differ across deals. It’s equally important to recognize that changes in process, leadership, and values may not seamlessly align with every client. As we’ve observed the activity, we have learned many lessons that have been consistent across the transactions and gained valuable insights into what clients should be aware of as these transitions occur. For example, a more prominent firm may provide a more robust client portal, meaning clients may undergo time-consuming data migrations, have to reestablish account credentials, and learn unfamiliar systems or tools. Or a new firm may have a different client focus, with guidance and strategies that do not align with your job, life stage, or needs.

We’ve also learned that change may not occur overnight but may unfold gradually, which could be tricky and unexpected for clients. For example, changes to the client agreement or an organizational restructure may not be announced initially or evident right away. It’s important to note that in many mergers, what appears to be business as usual to ensure client stability can, over time, change quickly or unexpectedly.

So, what should you do if your financial firm experiences a buyout? To start, knowing you have options and control over whether you also transition with your advisory team is important. To help inform your decision and give you some insight into what to be aware of, we’ll discuss critical questions you should ask about the new firm.

What Questions Should I Ask When My Financial Firm Is Bought Out?

When one firm acquires another, changes among processes, client platforms, and teams are virtually inevitable. However, whether clients decide to stay with the new firm is ultimately about understanding what the changes entail, when they’ll occur, and if they align with their needs and preferences.

Many smaller acquired firms may try to preserve their personal, attentive touch as much as possible initially. Still, some of the features, benefits, and systems you’ve come to know and trust may be consolidated for efficiency across the firm. While some of these timelines are outlined and communicated and others occur over time, you should be aware of them all as you decide whether to stay on board. With the following questions in hand, you can make a more informed decision about the future of your partnership.

#1 Will My Dedicated Advisor Still Be Involved in My Planning and Decision Making?

It’s not uncommon for larger institutions to restructure the organization or outsource or centralize some tasks and departments, such as trading and back office support, for operational efficiency. Let’s say you’ve become accustomed to a certain investment management style, have a rapport with your team, or have entrusted an advisor with your personal planning, much like the atmosphere at CCMI. Changes from what you’ve come to expect can be stark in contrast, affecting your comfort level, familiarity, access, or quality of services. Here are a few things you can discuss with your advisor:

  • How will you continue to be involved in my planning, investments, and decision-making?
  • Will any of my services be outsourced?
  • Will your role or responsibilities change?
  • Will I have the same access to you as before?
  • Will new people be involved in managing my accounts; if so, how will the handover occur?
  • Are you planning to retire soon?

#2 What Is the New Firm’s Asset Minimum?

A minimum in wealth management is the lowest amount of investable assets required for a client relationship, determined by each firm. With mergers, client relationships have ended because a minimum has increased beyond a client’s asset threshold. Again, a change like this may not happen immediately but it is critical to explore as it may directly affect your accounts. You may ask your advisor:

  • How long will the previous minimum remain in effect?
  • Will the minimum be revised in the future?
  • Will existing clients be grandfathered under the old minimum or will I need to meet the new threshold?

#3 Is the Firm Fee-Based or Fee-Only?

How firms structure their fees can give you clues about your future experience. Advisors often fall into two categories: fee-only and fee-based. Each of these types of planners can have  a significantly different client philosophy, approach to service, and payment model. The critical difference is ultimately based on how the planner is compensated. In addition to understanding the differences we’ll outline below, you may also ask your advisor:

  • Is the new firm fee-only or fee-based?
  • How are advisors compensated?
  • Are commissions or bonuses involved in recommending certain products?

Understanding Fee-Only Versus Fee-Based Models

A fee-only financial planner is only paid by clients in the form of a flat rate, hourly charge, or percentage of assets under management.

A fee-based financial planner may receive payment from clients as well as bonuses and commissions from an employer or product provider based on the services and products recommended to clients. 

The Benefits of Choosing a Fee-Only Advisor

Benefits of working with a fee-only advisor include:

  • Fiduciary standard and ethical practices: Fee-only advisors uphold a fiduciary standard of ethics, which means they’re legally required to put their clients’ interests above their own. This commitment reduces conflicts of interest and provides transparency in the client-advisor relationship, fee disclosure, and transaction process. 

In comparison, fee-based planners can provide “suitable” recommendations for their clients (but not necessarily in their best interest), defined at the fee-based planners’ discretion and interpretation. Although standards are starting to change, historically fee-based planners have no legal responsibility to tell you if their suggestions will positively affect their paycheck or genuinely help you reach your financial goals. 

  • Confidence in advice: Without a commission or bonus incentive, fee-only planners can focus on providing objective advice that aligns with your goals. Fee-based models may introduce commissions, potential conflicts of interest, insurance sales, and other unsolicited sales pitches.

What is a Form ADV?

You can find fee information by asking your advisor and reviewing the firm’s Form ADV or Uniform Application for Investment Advisor Registration. The Form ADV is a legal document the Securities and Exchange Commission requires outlining essential consumer information and disclosures. While not the most captivating read, the document sheds light on a firm’s fee structure, compensation model, past penalties, and more. For example, if you see fees are different, it could mean changes in the future.

A firm’s Form CRS provides a more reader-friendly explanation of the client and firm relationship. For example, CCMI’s Form CRS provides easy-to-read headings, essential questions and answers, and conversation starters for clients.

#4 Does the New Firm Consist Solely of Fiduciaries?

If you need help deciphering a fee schedule, you can also ask if your new firm is a fiduciary or refer to its Form ADV. Fiduciaries have an ethical and legal responsibility to act in your best interest with a clear goal in mind: helping you succeed financially. In general, the fiduciary model produces fewer conflicts of interest and more transparency in the client-advisor relationship. 

With a non-fiduciary advisor, other factors, such as commissions, could influence the products and services the advisor would recommend to you. It’s worth considering if their advice will always align with helping you reach your long-term financial goals.

You can ask your advisor:

  • Is the new firm held to a fiduciary standard? 
  • If not, how will you decide what’s appropriate for me when making investment and financial planning recommendations?
  • If not, how will conflicts of interest be communicated and managed?

#5 What is the New Firm’s Investment Philosophy?

A firm’s investment philosophy refers to its approach, how it selects investments, proprietary strategies, custodial partnerships, and more. For example, the new firm may primarily recommend their own products, limiting your investment options, affecting things like tax planning or requiring specific custodians. You can begin the discussion with questions such as:

  • Will there be changes to our existing investment philosophy and strategy?
  • How does the new firm measure success?
  • What investment options, such as asset classes and investment styles, are available?
  • Does the new firm offer proprietary and third-party products?
  • Does the new firm partner with my current custodian, and if not are there plans for integration?
  • Will I be required to switch custodians, and how will my experience change?
  • Are there tax implications I should be aware of?

How CCMI Can Help

We understand stability among financial partners is paramount, given the trust you give them to protect your hard-earned finances, family security, and legacy. Mergers can be dynamic in nature, so taking a proactive, informed approach and asking questions is imperative, allowing you to take control of your financial future. 

If you’re experiencing a transition with your advisor, we hope it’s smooth, guided by some of the questions we’ve discussed. Here are additional ways our team can help:

  • Personalized guidance: We’re always available to have a conversation to discuss your concerns, assess potential impacts, answer your questions, and explain your options to help you navigate any intricacies.
  • A comprehensive review of your financial plan: We’ll help ensure that your strategy aligns with your goals, risk tolerance, and other aspects of your financial life, such as retirement and estate planning.
  • Collaborative decision-making: During transitions, critical decisions must be made that could directly affect your financial well-being. Our team can offer options and insights and ultimately empower you to make informed decisions that suit you and your situation best.

We’ve cultivated a leadership team, culture, and operating model prioritizing long-term ownership and stability. Our approach gives our clients peace of mind that we are securely independent and not being acquired. Whether you have questions or are at a crossroads seeking viable options when transitioning from your current advisor, we’re here to help. In times of change, you can count on us as a steadfast partner, providing support, clarity, and commitment to your financial goals. If you’re facing a transition with your current advisor and have additional questions about what to do, please get in touch with our team. We’d be happy to have a conversation.

PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at https://myccmi.com/important-disclosures/

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

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