How a Lack of Succession Planning Can Kill M&A Deals

“We’re not doing deals so that the founder can leave in a year,” says Bob Oros, CEO of Hightower Advisors.


Illustration by RIA Intel

Five years after Hightower Advisors acquired Fairport Wealth, which now has $3.6 billion, Fairport has appointed a new CEO.

That was deliberate. The new leadership is part of a two-year long succession plan supported by Hightower.

“That’s actually the right way to do it. Succession needs to be really thoughtful, really orderly, and very purposeful,” said Hightower CEO Bob Oros. Hightower is an M&A focused RIA with $113.7 billion in assets under management and another $144.3 billion in assets under advisement.

Hightower, which increased assets 4 percent in 2022, is on track to grow at about 9 percent this year.

Over the last four years, Hightower has completed more than 45 deals and built a team soley focused on acquisitions, including calling and researching RIAs. Oros said the firm evaluates succession plans as part of every transaction. A lack of succession planning has even killed a couple of the company’s potential deals.

“We’re not doing deals so that the founder can leave in a year. We’re doing deals that can help the business start to transition to the next generation. And in most cases, founders still want to be a part of it,” Oros said. “If somebody says, ‘I’m just not worried about it. I’m not willing to do X, Y, or Z,’ then we’re probably not the right fit.”

Oros sat down with RIA Intel to talk about what should be in an RIA’s plan to turn over leadership to the next generation.

Responses have been edited for clarity and length.

At an RIA, what does succession planning typically look like or what are the different ways that succession planning can play out?

Succession is not a light switch activity. You don’t wake up tomorrow saying, ‘Hey, I want to transition the business,’ and two days later, it’s being turned over to a new leader. Well planned succession takes time and is a multi-year activity. But people don’t always have multiple years so part of how we assist with succession, is we just lessen the number of demands on the person running the business. If you’re the managing partner of a standalone RIA, you’re responsible for everything: HR, technology, compliance, and growth. There are a lot of demands on your time.

So that’s one thing to think about. Another thing is ‘do you have the people on your team who are credible, skilled, and willing to take over?’ If it’s no, then you have to go out and get it. In the case of Fairport, we went out and hired someone who then went through an almost two-year transition period to take over the firm. Succession is not ‘one size fits all’ and timeframe is the big dictator of what strategies you have available. If we have more time, we’d love to plan for it internally. We actually have a program to help facilitate internal succession called the “Hightower Center for Leadership,” which is an 18-month leadership program to learn about running an advisory business.

In your experience, how often do RIAs have a succession plan in place?

Probably 75 percent of them would tell you they have something in place. But whether that plan is adequate, or the people are actually prepared, is going to be a smaller percentage. The industry is doing a better job at succession, but there’s still many firms that need to catch up. Most have thought about it, and many have hired people and started to develop talent. But it’s hard, because when you’re running a firm, you’re probably not taking on a lot of excess overhead and the people you hire have full-time jobs at the firm. Finding time to actually teach them to run the business is hard to do. It is one of the things we look at with every deal. Is there a plan? What’s the level of readiness? And are we comfortable with that level?

If you’re not comfortable, is the deal over? Or is it a conversation starter?

Honestly, it can be both. It can be a conversation starter, but it can also be the end of the conversation. If somebody says, ‘I’m just not worried about it. I’m not willing to do X, Y, or Z,’ then we’re probably not the right fit. And there have absolutely been deals that have ended because of that. But we find in many cases, they’re willing to figure out a succession plan. They just need someone to help them think through what’s the best way to do it.

What are the different ways that advisors or RIAs can plan ahead?

You need to have an objective view of where your business stands, where your team stands, and how you’re addressing talent. Just because somebody’s been with you since the beginning doesn’t make them a good successor necessarily. Founders have to be willing to be honest about the capabilities of their team. And not just what they’re capable of, but what do they actually want to do? Many advisors just want to be advisors; they don’t want to run a business. Start with an honest assessment of your team. And then overlay it with an honest assessment of your own timeline. And again, that can change over time. The way we do something at the age of 50 may be different than when we turn 60. But at least have a point in time, because then you’ve got the goalposts to start to plan how to do it.

And how you do it can take many forms. It could be developing someone on the team. It could be going out and hiring someone. Or it could be partnering with somebody who changes your need for succession. So, it’s all about honest assessments, planning, and time. Just like estate planning, or financial planning, the earlier you start the better, because you are giving yourself room to course correct and to learn.

What are some of the challenges that affect succession planning?

You’re dealing with people. You’re dealing with human emotion. You’re dealing with mortality. You’re dealing with founders who have created an identity around their business. Succession can work in a number of different ways, but it’s highly dependent on the people involved. There are some founders who just cast too large a shadow. If they hang around, the business will never really transition because it will always be about them. Founders need to think about ‘How do I transition away from it? And when I transition away, do I still stay around and do something? Or do I transition away and cut the ties altogether.’ This is what makes succession tricky. It’s not a math formula, it’s way more art than science.

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