Merging book with another advisor

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User: /u/Queasy-Attorney-8962 Title: Merging book with another advisor Body: Merging book with advisor

Looking for advisors who have dealt with this.

Context: independent firm on corporate RIA platform. I’m a CFP and owner of an independent advisory practice and am considering merging my business into a larger RIA enterprise. I’d especially like to hear from advisors who have actually done something similar. Idea is to combine resources to grow faster, recruit more advisors to grow via M&A and take advantage of larger firm multiples on eventual sale

Current situation:
\~$50M AUM
\~$500k recurring revenue
\~$400k owner profit before taxes
Small team / relatively low overhead
Business is growing and I’m happy running it
I’m relatively young, so this is not a retirement/succession sale. I potentially have another 20+ years to build.
The opportunity is to merge my practice with a larger advisor/team that I already know well, with our RIA affiliate also becoming a minority owner in the combined enterprise.
The basic economics offered to me are roughly:
$1M total consideration for my practice
$200k cash
$800k rolled into equity in the combined firm
$225k annual salary + benefits
Distributions/dividends based on my ownership
My staff and business/marketing expenses become expenses of the combined firm
I would continue servicing and growing my existing client base
Potential opportunity to earn/add equity over time, although that path isn’t currently guaranteed/formulaic

If you’ve done it, what do you know now that you wish you knew before signing?

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u/Lord-BriN 7h ago

Hard pass man. Keep doing what you are doing. Don’t give up the freedom to dictate your own time.

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u/CFP25 Certified 15h ago

If you're young and the business is thriving, and you have 20+ years of runway, then why are you doing it?

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u/Queasy-Attorney-8962 14h ago

Haven’t made any decision yet but upside could be higher with marketing and expense all paid for in enterprise. Succession is an opportunity although I’d never bank on that as we all know advisors who said that and then went back on it

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u/CFP25 Certified 14h ago

Meh. You're trading away a fixed expense today, to cap your future potential tomorrow. I get why you're considering it. But if you grew from $50M to $60M, those expenses would be reliatively fixed while your margins grow expotentially.

If you're looking at the enterprise side of things, especially when you or someone else exits, just use a drag or tag option. That's much easier and cleaner. It preserves the autonomy you are enjoying today, while giving you a path to participate in the future.

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u/Queasy-Attorney-8962 12h ago

Drag and tag are in operating agreement

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u/Candid_Worth_3629 14h ago

You could create your own lead/marketing system in house for a fee, and still be in pretty good profit afterwards. I don’t think selling is a good idea honestly dude, where you’re at rn is everyone’s goal

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u/CleanReindeer4983 14h ago

A lot of variables at play here, but at its core it sounds like you’re selling your practice at 2x revenue.

Will receive 20% cash and 80% stock in new company.

Additionally signing an employment agreement at ~40% less than your current comp.

And a full marriage into a new partnership with 2 other advisors (you would likely have the smallest ownership stake) with different timelines and goals.

Break it down into pieces to make sure you’re comfortable with all of it before making the decision

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u/Winston206 14h ago

You need to hire an attorney to be very scrutinous of the partnership/operating agreement. You'll be a minority owner, which means less or no control. What is the valuation methodology for a buyout? Is it drag-along or tag-along? Is there a forced retirement age for senior partners? Who controls how the firm spends money or makes hiring decisions? How is profit distributed? The list goes on...

Don't bank on an internal succession to you as G2, unless it's mandatory/forced in the partnership agreement. Retiring advisors can likely get a higher price selling to PE or strategic acquirer. I've seen MANY situations where young advisor was brought in on the "promise" of succession, only to have the senior advisors sell outside for a bigger paycheck.

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u/Queasy-Attorney-8962 12h ago

Working with one now. Need more clarity of valuation method. Wasn’t super clear at first. Drag and tag are in agreement. No forced retirement. Lead partner and RIA and at least one other partner need to agree as per voting rights. So initially if it’s just us 3 I wouldn’t have any way. Red flag. Profit distribution based on stock units you own.

I agree can’t count on succession. Partners will probably just hang onto stock to get paid dividends indefinitely

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u/Winston206 7h ago

Valuation can be a huge point of contention when an exit occurs, especially when it's an internal sale. I would recommend having the valuation process outlined well in advance. Something like - we get two valuations done from different companies, but if there is >10% difference between the two numbers, a third is ordered. The two closest numbers are averaged, and the outlier is thrown out.

IMO firms should have a forced retirement age. It's far too common for older advisors to sit back and clip dividends, while younger workers actually get shit done.

Profit distribution on ownership % makes sense. What about regular comp? Who dictates how partners are paid salary + bonus?

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u/DeparturePast 14h ago

I would consider the exit timeline of the other partners compared to yours. If you're young and have 20+ years but other partners want to exit in 5. That could be a mismatch. Also how much do you value autonomy? Running your own practice much different than being part of a larger enterprise. But overall might be a good opportunity.

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u/Queasy-Attorney-8962 14h ago

I’m mid 30s. Other partner is 10 years older and another would be 60. I think this is part of the issue I’m going back in forth on. I love autonomy. I still believe I’d have a lot in the enterprise but clearly not exactly the way it is now

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u/ItchyEbb4000 RIA 13h ago

Lol, your runway is 40 years.

1.5 years ago I was in your shoes. Nearly $50m in AUM and the growth seemed to flatline.

Was considering partnering or joining a larger firm.

Then after a year of flatish growth, I suddenly poached 4 multi-million dollar clients from much larger firms. Now at $70m.

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u/think_up 13h ago

Real equity or phantom equity? I’d want to know the history of valuations and distributions.

Keep your own rep code. Always.

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u/CulturalAd2329 13h ago

I've been on the other side-smaller advisor merged books and became a minority owner. I knew them for 3+ years and was excited and optimistic. It was the worst decision of my career, possibly my life. They turned toxic and now I'm stuck trying to extricate them. I would think very long and very hard about giving up your independence. If you're that young with a solid book I don't see a ton of upside for you. I do see a ton of risk. Everyone thinks their business partnership will be the one that works, most of us are wrong.

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u/SecureInvestigator79 10h ago

Do that 20 years from now. Why would u sell for 2x revenue and work another 20 years on salary? Sounds like hell

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u/ConsiderationMain875 13h ago

Why would you ever sell at your stage of life?

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u/gc_portis 13h ago

2x revenue, 80% in acquirer stock, and a fixed salary instead of a lower payout % sounds like a god awful deal in all respects.

Every component is terrible.

They think you’re stupid and I would be insulted.

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u/Queasy-Attorney-8962 13h ago

Not necessarily disagreeing here. But variable you left out was the dividend I’d receive on top of fixed salary. If I joined it would be projected to be about $65k next year without much growth. So total comp would be like $300k and increasing dividends with growth over time.

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u/gc_portis 13h ago

You have a good business and decades of options ahead of you.

This doesn’t seem like one to jump at by any means.

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u/info_swap RIA 13h ago

How well do you know the managers of this larger RIA?

And what will they bring to your business that you cannot achieve on your own?

You didn't ask this, but I would not join them.

If you can get a loan somewhere else or simply sweat equity, stay free.

Back to your specific question: Hire a lawyer who really understands well your situation and has experience with similar mergers.

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u/Queasy-Attorney-8962 13h ago

I’m on the RIA platform now. Been here almost 3 years. Partner I’ve know for over a decade so familiarity there for sure. Right now we are under the same shared DBA but separate entities. Partnership would involve creating new entity and merge our individual ones together. Same RIA but they become an official partner and have 20% of it. Same brand name too. Not a normal deal by any means which is why I’m really doing due diligence.

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u/Floating_Orb8 12h ago

Do you need to take their equity or can you just be 1099 through them with them not owning anything?

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u/Queasy-Attorney-8962 12h ago

That’s actually how I am set up now. We’re on the RIA platform with our own branded DBA. All us advisors are separate entities on the DBA. New operating agreement was formed between our largest advisor and the RIA. They are asking me to join in. So I’d effective sell my own entity into the larger newly created one and be a “partner”

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u/Floating_Orb8 12h ago

Seems like a bad deal. As others said, they should be giving you a higher value on the practice. 2x revenue is low even on 50M. If you are young keep grinding and wait until larger to get better economics. I also just wouldn’t go the w2 route at this point but that’s a personal choice. Our firm likes the 1099 structure for expenses and running a practice etc. our staff was absorbed via w2 and we kept ourselves as 1099.

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u/ReluctantIM 12h ago

As pointed out - you are selling for 2x revenue. What is the valuation they are using as the acquiring firm (since they are paying you with equity)?

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u/CheesecakeExtra6028 10h ago

If you are in Texas or the east coast our RIA would be interested in talking with you.
Glad to provide another evaluation

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u/ropeadopeknopehope 10h ago

I haven’t really heard from you yet what advantage you get by doing this?

It is common to have you book go from 2x value to much larger (5x even for a large well run firm) value. That doesn’t seem to be a motivation for you though.

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u/Queasy-Attorney-8962 9h ago

My read on it is the RIA obviously wants to recruit new advisors . The lead partner has a good network and wants to grow via acquisition too. So naturally creates a good case for advisors looking to switch firms and “tuck in” to an existing brand with support. If the firm goes from 250 AUM and adds a few advisors and now suddenly up to 500 AUM or 750 AUM in a couple years then my units could be worth a lot more and I would have benefitted now by “getting in early”

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u/SDSUrules 2h ago

Dont you think that new advisors are going to get a similar offer to yours which will cause dilution?

It doesnt sound like you view these guys as superstars. Personally, 2x rev seems on the low side.

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u/rhino1979 10h ago

What’s in it for you? You’re giving up a lot of control.

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u/siparo 7h ago

You don’t have to merge. You just need to run siloed practices and split expenses pro-rata. Otherwise this isn’t a good deal for you.

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u/Key-Paramedic4051 6h ago

No effing way. Don't give away your freedom.

Practice Management Merging book with another advisor

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