Podcast Summary

Podcast: Managing Your Practice
Host: Dimensional Fund Advisors
Episode Title: Future Proofing Your Practice: How to Prepare for Succession and Transactions in a Period of Growth
Date: March 5, 2024
Guest: Dave DeVoe – Founder & CEO, DeVoe & Company

Episode Overview

This episode explores how financial advisory firms can effectively prepare for succession, navigate mergers & acquisitions (M&A), and position themselves for long-term growth. Kathryn Williams, Head of Practice Management at Dimensional, interviews Dave DeVoe, a leading consultant and thought leader in the RIA M&A space, to share actionable insights based on industry data, personal experience, and recent marketplace trends. The conversation dives into why future-proofing through thoughtful planning and cultural evolution is key as firms face both generational transitions and unprecedented growth opportunities.

Key Insights & Discussion Points

1. Dave DeVoe’s Journey & Industry Evolution (00:25–08:08)

• Dave’s Entrepreneurial Background: Started as a business novice, ran a surf pants company in college, learned the ropes, and then built expertise at American Express and Schwab, before founding DeVoe & Co.—a consultancy focused on serving mid- to large-sized RIAs.
  • Memorable moment: Dave recounts accidentally starting a clothing company:

  “I accidentally started a clothing company... before I knew it, I was selling them to surf shops and three Nordstrom locations.” (03:18)

• State of the Industry Then vs. Now:
  • 15–20 years ago, crossing the $1B AUM mark was exceptional; only ~75 firms.
  • Today, nearly 480+ have surpassed that milestone (06:27).
  • The once “iconic swagger” of big firms has evolved—today, even $6B AUM firms are watching their backs amid consolidation and new competitive dynamics.

    “It's an evolving competitive landscape… the evolution is accelerating with the consolidators and these meta firms that have entered the space.” (07:04)

2. Lessons from Leading and Scaling a Firm (08:08–11:59)

• Growth & Culture:
  • Scaling a business fundamentally alters its culture; evolution is both necessary and healthy.

    “I'd be a little worried if your culture really did not change at all, because that could imply that it's anchored around an individual too much or the business itself isn't moving forward.” (10:06)

  • Leadership must balance excellence, process, and adaptability as they grow.
• Reframing Culture as Evolution, Not Loss:
  • Stagnant culture suggests inflexibility, whereas active evolution means healthy inclusion and adaptation.

    “That also almost is like a lack of inclusion. Like you want your people who you hire and you think are wonderful and great and have these great ideas to have their own fingerprints on it.” (10:41)

3. 2023 M&A Landscape and Market Dynamics (11:59–20:13)

• A Decade of Growth, but a Pause in 2023:
  • 10 consecutive record years of RIA M&A; slight 5% drop in 2023 (first pullback in 10+ years) but still a robust “wave” (11:59).
  • Seller activity up sharply (seller count grew 230% over five years vs. 75% growth in number of buyers) (13:20).
• Seller’s Market – High, Justifiable Valuations:
  • Despite more sellers, strong demand and well-capitalized buyers drive high valuations.

    “Valuations are up and that sounds like a seller's market. And I would say emphatically, yeah, 100% ... Today's buyers ... can either make that acquired firm grow faster or make it more profitable or both.” (13:59)

  • Sophisticated buyers (private equity, meta-RIAs) can add value, supporting high multiples.

4. Blindspots & Keys to Premium Valuation (16:35–18:56)

• Growth Is the Most Sensitive Valuation Factor:
  • Sustainable, demonstrable growth raises firm value 6–7% for each 1% annual increase.

    “For every 1% faster that you grow, ... the value of your firm will increase about 6 or 7%... buyers will pay 20% more for your firm [if you outperform].” (16:54)

• Strategic Reinvestment & Realistic Profitability:
  • High-performing firms reinvest more in growth (65%+), which pays off long-term.
  • Optimizing—not just maximizing—profitability is important; over-leaning can backfire if buyers spot under-investment.

5. The Growing Role of Private Equity & Outside Capital (18:56–22:52)

• Not Just ‘Buyers’ Anymore:
  • Private equity is mainstream and, so far, a net positive—driving growth, innovation, and capability building.

    “Private equity to date has behaved pretty darn well. ... The opportunity is huge. So...they have that potential of deeper pockets to do things.” (20:13)

• Value of Minority Stake Investors:
  • Minority capital is a growing space, attractive given the G2/G3 succession challenge—yet, sellers must vet partners carefully to ensure true alignment and added value.

    “...ideally you're not just taking capital, but you're signing up with a thought partner...” (25:28)

6. Succession Planning Paralysis & Misconceptions (22:52–30:28)

• A Persistent Planning Gap:
  • Only about one-third of advisors have a documented succession plan.

    “It was like 29% [20 years ago]. So good news, like we've gone up 4% or something. It's just...” (23:29)

  • Main barriers: Psychological avoidance of change and mortality; complexity and overwhelm; perception that options will be plentiful when the time comes.
• Complacency vs. Urgency:
  • Waiting too long or treating the process as a “fire sale” reduces value and narrows options.

    “Pulling the trigger 12, 24 months before you really want to do something is probably going to be more like a fire sale.” (27:34)

  • Having a plan increases firm value and signals professionalism to buyers; the absence is a “yellow flag.”

7. Buyer’s Perspective & Best Practices (30:28–34:43)

• Many Want to Acquire, Few Deals Materialize:
  • 60%+ of firms want to acquire, but transactions are limited; aspiring buyers must get serious, differentiate, and “suit up.”

    “You need to separate yourself from the rest of the pack... because so many others are. And... you're competing with ninjas, folks that have done 10, 20, 50 plus transactions.” (30:46)

• Acquisition to Grow (Talent and Clients):
  • Most buyers seek talent and new clients. However, inorganic growth isn’t an easy fix for weak organic growth muscle.

    “Just because you can't grow organically is not a reason to start growing inorganically.” — Citing Scott Slater (33:17)

8. Organic Growth: Why It Matters and How To Communicate It (33:17–34:43)

• Communicate and Reinforce Growth Purpose:
  • Articulating the 'why' behind growth — better client service, career paths, increased capabilities — motivates teams and attracts sellers.

9. Making ‘Culture Fit’ Tangible in M&A (34:43–38:51)

• Diagnosing and Articulating Culture:
  • Write down your own core cultural values, then compare and discuss explicitly with prospective partners.
  • Probe with scenario-based questions (“What did you do for your people during COVID? How do you handle difficult clients?”) to reveal real behaviors.

    “How do you make the intangible culture tangible? ... Some have said culture is what people are doing when no one's looking.” (35:33)

• Seek Complementarity, Not Carbon Copies:
  • A perfect match isn’t required; openness to cultural adaptation can create shared strength if aligned on foundational values.

10. Reflections on Solitude, Leadership, and Sustainable Energy (38:51–41:09)

• The Importance of Intentional Recharge:
  • Both Dave and Kathryn agree that intense, focused hobbies (guitar, Pilates, live music) provide necessary solitude to maintain leadership clarity.

    “The things I tend to get obsessed with are things that I cannot think anything about while I'm doing it... I have this sense of equanimity...” (39:34)

Notable Quotes & Timestamps

• Dave DeVoe on Culture:

  “You want your people who you hire and you think are wonderful and great and have these great ideas to have their own fingerprints on it.” (10:41)

• On Growth & Valuation:

  “For every 1% faster that you grow... the value of your firm will increase about 6 or 7%.” (16:54)

• On Succession Planning Gap:

  “Only about a third of advisors in our study say they have a documented succession plan ... the number was like 29% [20 years ago]. So good news, like we've gone up 4%...” (23:29)

• On Buyer Readiness:

  "You need to separate yourself from the rest of the pack... you're competing with ninjas, folks that have done 10, 20, 50 plus transactions." (30:46)

• On Cultural Due Diligence:

  “How do you make the intangible culture tangible? ... Some have said culture is what people are doing when no one's looking.” (35:33)

Important Segment Timestamps

• [00:25] – Kathryn introduces Dave and sets the stage on M&A and succession’s growing importance
• [03:18] – Dave’s entrepreneurial story: surf pants to M&A
• [06:27] – Industry then vs. now: The $1B milestone
• [08:08] – Leadership lessons on culture and growth
• [11:59] – Examining 2023’s M&A slowdown, the strength of the seller’s market
• [13:59] – Why and how valuations are high—and justified
• [16:54] – Growth as the key driver of valuation
• [23:29] – Chronic gap in documented succession planning
• [25:28] – Rise and caution with minority and capital partners
• [27:34] – Why putting off succession is risky and costly
• [30:46] – Advice for aspiring buyers and differentiating in the market
• [35:33] – Tangible steps to assess and ensure cultural fit
• [39:34] – Reflections on solitude, clarity, and leadership

Takeaways for Advisors

• Start succession planning early—years in advance if possible. It’s not just about continuity, but about maximizing firm value and ensuring your people can and want to carry the torch.
• Invest in sustainable growth. Demonstrated, organic growth is the single best driver of premium valuation and attracts better buyers.
• Culture is a living organism. Don’t fear evolution, but actively define, communicate, and adapt your core values while seeking partners with complementary strengths.
• Buyers must differentiate themselves. If you want to acquire in today’s market, take it seriously, be prepared, and showcase your growth and talent advantages—don’t treat M&A as an afterthought.
• **Private equity is here to stay, but vet any capital partner as a long-term, value-add collaborator—not just a source of liquidity.
• True reflection and recharge are crucial for leadership. Find your unique solitude to clear your mind, recharge, and make the best decisions for your staff and clients.

For more information and resources, visit devoeandcompany.com or dimensional.com