A lawyer, a banker and a consultant disagreed on which among their professions RIA owners should contact first if they are considering selling their firm or buying another. But all three agreed RIA owners increase risks if they share client details before they close M&A deals.
The three professionals appeared together on a panel about how RIA M&A deals unfold at the Charles Schwab annual conference held this week in San Diego.
The experts warned RIAs to share almost no substantive information about their practices until they have inked non-disclosure agreements with a prospective buyer or seller — and even then no client information until a deal closes. With that kind of caution, the firms better avoid inadvertently tossing out trade secrets or subjecting themselves to data protection and privacy-related litigation.
“Call me first,” Jessica Karner, managing partner of San Rafael, Calif.-based Keegin Harrison, who helps RIAs structure such deals, told the audience of almost all advisors.
An RIA owner who wants to sell or merge with another firm requires “deep preparation,” she says. Many RIA firms need to streamline operations and revise procedures, possibly clarifying some previously only-tacit policies, before they start the selling or buying process in order to ensure smoother transactions. They may even want to redraft client engagement agreements to prepare for such an event, she said.
“Come to me first,” recommended James Hughes, a senior loan officer at Live Oak Bank in Wilmington, N.C., which specializes in financing RIA M&A deals.
“It’s nice to know first if the bank is interested in financing a deal. We can talk to you about what you can afford before you sign a letter of intent,” Hughes told the audience of advisors.
David Selig consults with advisors about M&A deals for the company he founded and serves as CEO, Advice Dynamics Partners in Mill Valley, Calif.
“If you come to me when you are already on the cusp of a deal, it’s kind of too late,” Selig warned. RIA owners who expect him to help when they reach out for only specific tactical — rather than overall strategic — advice, are shortsighted, Selig said.
All three — Karner, Hughes and Selig — warned RIA owners against oversharing with prospective buying or selling firms, even after the two sides sign nondisclosure agreements.
“NDAs are hard to enforce,” Karner cautioned. A breach of the agreement is hard to prove, she said, adding that a court order barring any further disclosure of competitive information is hard to obtain.
Therefore, Karner and her fellow panel members recommended handing over zero client information to parties on the other side while the deal is still in progress.
“Never share any client information until after the deal closes,” said Selig.