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- [00:00]
A
Foreign. Hi everyone. Thank you for joining us today. My name is Katherine Williams and I am head of Practice management here at Dimensional Fund Advisors. And with me today are a couple of gentlemen who, if you are considering some sort of M and A transaction, if you're thinking about succession or maybe just needing to navigate the regulatory environment, it's likely you've at least heard their names and perhaps even have had an opportunity to work with these two gentlemen. But you know, particularly in this area around mergers and acquisitions, big transactions, big changes to your business, having the right partners around you, when to bring those partners to the table, is something we're going to talk about today, can be really critical to the success in helping you achieve your strategic goals. So with that, let's dive on in and it's my pleasure to introduce our first guest, Chris Frieden. Chris is a partner with Alston and Bird based in Atlanta, Georgia. And over the past 25 years, Chris has advised on over a hundred wealth management M and A transactions, investment transactions. So an incredible body of work. Got a couple legends here on the podcast today. Chris, it's great to have you with us.
- [01:19]
B
Yeah, great to be here with you as well.
- [01:21]
A
Also joining us today is Brian Hamburger. Brian is the founder and CEO of Market Counsel Consulting, which is one of several companies that fall under the Market Counsel umbrella, if you will. And he's also chief counsel, Hamburger Law Firm. Brian as well. 20 plus years of experience, legendary expertise around this space. It's so great to have you with us today.
- [01:44]
C
Well, thanks for having us. I think what you're saying, the subtext is that Chris and I are old guys in this space, but I appreciate being here. Thank you.
- [01:51]
A
Well, I often say that I have been in the part of the industry over 20 years and then my team has been gently nudging me to say something more like almost 30. So I'm with you on that. I'm with you on that. It's great. We've got badges and scars that we can talk about today, right?
- [02:07]
C
No doubt.
- [02:08]
A
And so, Brian, starting with you share a little bit about where your focus, the areas of the industry and how you show up for clients. What does that look like for Market Counsel and in Hamburger Law, quite simply.
- [02:20]
C
Our consulting firm and our law firm have positioned themselves to be a resource for advisors at all stages of their life cycle, from the contemplation of an independent wealth management firm to the actual implementation, transition of talent, launch of a new firm, all the way through the various growth phases that advisors encounter, the resilience components, succession all the way through the eventual exit. And I know that's what we're going to talk about today, but when we talk about M and A, what we have to continually remind ourselves is that that is simply the last stop for many of these founders who have been on a very long journey.
- [03:05]
A
Yeah, I feel like we used to be able to say, until recently, you know, you're only going to sell your company once. But actually, I don't know that that's the truth. Right. Chris, share a little bit about what brought you to this particular space. Your body of work, the firms that you've engaged with and helped to transition, as Brian was just alluding to, is pretty extensive. What that look like for you and why is it interesting to you?
- [03:28]
B
It's been an interesting, you know, 25 years. I started out doing financial services, M and A, and I did a lot of bank and mortgage company M and A early in my career. And, you know, coming through the financial crisis, I was sort of pivoting. Obviously mortgage M and A wasn't the right place to be and started working with wealth and asset management firms and just realized it drew on a set of skills that I had, you know, M and A related financial services related. But I liked the client base and the industry. Just generally, you know, it's fun to work with clients who have built something, to Brian's point, through the life cycle of their business. So you're working with somebody who has built a business. It's their baby, it's their lifeblood, and they're selling it. Or you're working with somebody who is newer to the space, you know, has a vision for an, you know, a new way to service clients and things like that. And so it's fun to work with people where it's. It's very personal. It's not dealing with banks and big companies like that. And some of them are very large businesses, but you're dealing with people who are very personally involved in their businesses. The other thing I would say is it's just really, it's a neat industry in terms of the connectedness of the people, the service providers, the custodians, the investment banks, the lawyers, and all of the advisors themselves. There's a lot of interrelation. You run into a lot of the same people from one deal to another. And so it's been a really good relationship business to be in for me.
- [04:55]
C
It is an interesting way that we all get to this space. Right. To Chris's point, most of us that are spending time in this space are really drawn to the story, right? The entrepreneurial journey in highly regulated space within a tight knit community. For me, working within the legal space, but particularly around M and A, was a very natural extension to the work that we were already doing with advisors and founders throughout their entire business life cycle. You know, early on I realized that many of the most consequential moments in the advisor's career aren't purely investment or growth decisions. They're structural, legal, strategic decisions that all lead to a real outcome. But it was so far down the path that advisors weren't necessarily correlating their actions today with the impact that it was having tomorrow. Right. So whether it's launching an independent firm, bringing in partners, restructuring ownership, or ultimately pursuing a merger or sale, these moments sit right at the intersection of business strategy, governance, compliance, law. And we were consistently seeing advisors making these long term decisions about fully understanding how those choices would impact control, economics, culture, optionality. Down the road. I think to Chris's point, M and A in particular, it's not just a transaction, right? It's the culmination of years of these decisions around the firm's architecture. Leadership, incentives, risk, you know, being a rare source of objectivity that is able to span strategy to compliance to legal, allows us to support these advisors not just at the moment of the deal, but well before that point, helping them build a business that's actually transferable, defensible and aligned with their personal goals. You know, much like our advisor clients, what drives us isn't the financial transaction, it's the life changing impact that the transaction can have on that founder or even on their G2.
- [06:51]
B
It's been interesting too that, you know, if you look back where we were kind of 15 years ago and you talk to an advisor or some founders about their firm, their answer was, you know, we're never for sale, we're never going to do a deal. And so it just wasn't on their radar. They were planning for servicing their clients, they were planning to transition the business internally. Nobody was for sale. And obviously, as the economics of M and A have changed over the last, you know, call it 10 or 15 years, people have had to plan differently. And so it's evolved the way that they're thinking about their business and it's evolved the roles that we play in working with them in their businesses.
- [07:29]
A
Well, so I'm curious, I guess just as further set context, we run a deals in succession survey, often ahead of our annual conference of the same name. And you know, we've seen the number move up A little bit, but still only about a third third of advisors or business owners tell us that they have what they would consider to be a well planned, well documented succession plan. Right. I know Fidelity and Schwab and others see some similar metrics. So even when we think about maybe the last couple of years or so, what in your experience has been that mix of driver for a transaction? Is it succession? Is it to drive further growth? Is it to solve some sort of tension in the business? Have you seen any? You know, we're going to spend most of our time looking forward, I think, but I'd love to get your sense of the last couple of years on some of the drivers for the transactions that both of you have been engaged around. And Brian, I'll start with you, if that's okay.
- [08:25]
C
I'm going to give you a very disappointing answer, I think. Katherine, you know what's really stood out to me over the past few years from our lens is that a meaningful amount of transaction activity isn't being driven by founders who are being strategic or proactively deciding to sell. It's being driven by hawkers and outbound sales efforts. Five or ten years ago, I would've assumed that most, which is not long, right? But five or 10 years ago, I would've assumed that most M and A activity would be founder led and highly intentional firms raising their hand because they either hit a scale milestone, they needed capital, they were planning succession, the founder was ready to move on or retire. Sometimes, you know, it was an immediate concern, it was a sudden health concern. But instead, what we're seeing today is many transactions begin with an unsolicited call or a pitch or hearing about a friend's transaction that introduces a liquidity narrative that the owner hadn't seriously contemplated before. To Chris's point, if I had a nickel for every advisor who told me that they would never consider selling to private equity, I'd be on the beach today. That dynamic has materially shifted both deal velocity and valuation expectations. When sellers are introduced to these headline multiples early, often without the full context around structure earnouts or control trade offs, it can reset expectations very, very quickly. And in some cases, it accelerates a sale that might not otherwise have happened. Right? And in others, it creates misalignment between perceived and realized value. And finally, I'll say from a valuation standpoint, it's pushed the market in two directions all at once. Right? Higher headline multiples on the front end, but far more complexity lurking underneath. Longer earnouts, performance hurdles, tighter post close controls and so the irony is that the louder that that outbound activity, the unsolicited inquiries become, the more important it is for founders to understand what actually drives durable value for them versus what simply sounds attractive in those first few conversations.
- [10:36]
A
Well, and to your point, from that same survey I referenced, participants in the survey told us that on average they're getting about 17 phone calls from people interested in either investing or buying the business.
- [10:49]
C
So is that a month annually?
- [10:52]
A
Monthly at this point, but yeah, no, it's. I mean, it's a lot. And so, you know, but anyway, it's certainly the volume is. Is there. Chris, what's your perspective? How's that look for you?
- [11:02]
B
Yeah, I mean, I've seen a lot of the same. You know, a lot of the firms that I worked with were never for sale. They were going to sell internally. And as more private equity money has come into the space, the gap between selling internally and external multiples has gotten so big that you have a lot of people saying, well, gosh, I really have to sell externally. And a lot of these deals now have a big rollover piece. So there is an opportunity then for the next gen. The other thing that I would say though, that I think has been driving a lot of this is just the importance of scale. The bigger firms, at least from what I've been seeing, tend to be more successful in competing. They have better technology, better client acquisition, better advisors, better recruitment. So scale has mattered and has made the larger firms almost sort of super competitors in a way. And so I think that's driving consolidation from firms that otherwise may have wanted to stay independent. They're worried that, you know, gosh, if I don't do something now, five years from now, ten years from now, I may not have that opportunity.
- [12:08]
C
I think, you know, I think, Chris, with all due respect on the scale issue, I think scale is a bona fide narrative for growth. But I'm not quite sure that I've seen good evidence that the scale narrative really supports profitability because we are seeing headline growth from those firms that can achieve scale. But as far as our firms becoming more successful, more profitable, more impactful to their client lives, I'm not quite sure that that scale narrative has played out. And we're still in the early innings. Right. So I'm not refuting your observation, but I think it's still a little open ended to see how that continues.
- [12:48]
B
The only way I think it is a way. I think one of the things, you know, that I've seen also as sort of differentiation where firms they don't have to be bigger to be better. They do something different. And, you know, whether it's a market niche or a particular service or specialization, they find a different way to be competitive. But I agree with you, scale is not the only thing by any stretch.
- [13:12]
A
I think where it shows up is this idea of scale as a sales tactic. We'll just use that word is very much in play. But to Brian's point, whether it actually turns out that way, I would agree. The jury's a little bit out for me. And it's one thing to look at the. We'll call them the national or even serial acquirers, right, that are doing, you know, eight, nine, ten deals a month almost, versus that more traditional RA that may only do one or two deals a year. And both of those are incredible strategies and viable players in the M and A space. But, you know, which one will ultimately drive scale over time. It's. The jury's a little bit out for us as well too on that, including even within a little bit of our data that we capture. We'll see.
- [13:57]
C
And Catherine, I think perhaps for another discussion, right? This is an industry that has an incredible ability to scale down, right. When we look at the impact that SAS technology has had on this business, the fact that you can go out and provision a single seat for, you know, what traditionally, you know, 10, 20 years ago were enterprise only, you know, systems, right? What it means is that you can be intentional about creating the firm. But what I do pull from Chris's observations is, you know, stand for something, right? Have an identity, have a thesis behind your business, whether you're out there to achieve scale, whether you're out there to differentiate yourself, whether you're out there to, you know, create the most bespoke client experience, right? Your firm should have an identity and should stand for something and then normalize that to current market constraints, right? Because you don't want to just differentiate yourself and have all of this bespoke technology that might result in an eventual discount at sale, right? So that's a whole other discussion. I don't want to take us off the rails.
- [14:54]
A
Well, I do want to come back a little bit on things that for both of you, you know, if I'm a business owner listening today and I'm thinking, what's driving the value of my business, but what might be detracting from the value of my business? I want to come back to that. But before I do that, Chris, just circling back a bit to something you commented on, that, you know, the impetus for Some of the work that you've done has been around this idea of how do I account or accommodate or find a pathway for G2 or that next generation in the business, which, you know, I think, as both of you've alluded to, in many cases it does require an outside equity or financing partner of some kind because these businesses are so expensive. But when you're engaging with a business that says, look, I want to get equity moved to that next generation, what are some of the first things, things that you look for or ask about that are immediate considerations in that sort of a situation?
- [15:48]
B
Well, I mean, it's interesting because, you know, in my experience, a lot of times people are slower to equitize the next gen than maybe they should be. You know, I think a lot of founders built their businesses and the idea was, down the road, we're going to sell it to the next gen. I do think there's a lot of value in ownership and not just economically. I think people feeling like they're partners really translates into kind of an ownership in the way they operate, in the way they work with the clients and the way they treat their coworkers that really is beneficial to everybody. And so, you know, one thing I have seen and that I would encourage is people to think about equitizing people earlier on in their careers. It doesn't have to be huge, but, you know, some kind of ownership I think is really good and drives the kind of behavior that you want. And then the. The same time, I think you're kind of balancing control and economics as an owner or as a founder. You know, I. I would encourage people to sort of equitize younger people, but understand that, you know, as the founding shareholders, you have the experience to bear on the business, that you should continue to be very actively involved, kind of run the show. And so that's why I sort of say control and economics need to be aligned. Your larger shareholders need to be the decision makers, but you want the younger people at the table and kind of helping learning the ropes and moving the business forward over the, you know, over the next 20 years.
- [17:18]
A
I appreciate you building into your comments there around what is essentially sort of clarity about what does it mean to be a shareholder and that there is a difference in some cases between being a shareholder and being a decision maker. It can also be evolutionary in nature, but I think having clarity on what it is that it does truly mean to be a shareholder is often where we see organizations get a little stuck and therefore sometimes don't take action. When they should. So I appreciate you touching on that a little bit, Brian. So going back to this idea of, you know, we, we were talking a few moments ago about drivers for activity, but then as we do think about drivers for the value of the business, I'll frame the question this way. Are there some things that you see pretty regularly, blind spots, even with business owners on either what they think is adding to the value of their business or what is perhaps maybe detracting from the value or could detract from the value in the eyes of an acquirer that they sometimes are not paying attention to?
- [18:19]
C
Yeah, and it's a common question. One of the biggest blind spots that we see across both RIAs and all closely held business owners is the tendency to keep hitting the snooze button on transaction readiness. Owners often underestimate just how much value is lost by not preparing a business two to three years ahead of a potential sale. And this actually, you know, ties in really well with Chris's comments on G2. You know, this is not the kind of thing that we can just orchestrate elegantly overnight. There are tax considerations, there's training and coaching that needs to be done in order to get everyone ready. And the thing about that lost opportunity, the impact of hitting this news button is that business owners will never know. They'll never know of what could have been if they had started to prepare in advance. What I'm speaking about specifically are governance gaps, concentration risk, unclear economics, weak documentation. Those issues don't just slow deals down. They directly translate into lower valuation than what was otherwise achievable or more punitive deal terms. Another recurring blind spot is how late legal and other strategic counsel is brought into the process. I won't speak for Chris, but too often we're introduced after a so called non binding LOI has already been signed. And at that point leverage has shifted, right? Expectations have been set, hands have been shaken, and it becomes much harder to unwind structural issues without some type of friction or value leakage or worse really impacting the goodwill that they need to sustain the next three to five years of a likely earnout. We also see some significant misunderstanding around minority deals. Founders will often focus on headline valuation, but they don't really take into account the covenants, the consent rights, the control limitations that often come along with selling a minority stake of their business. I mean, one throwaway term, you know, just a, you know, a right of first refusal that owners are quick to give away. I don't think they understand the impact that that has on Deal two, the next deal that they're looking to do. And in many cases, these provisions effectively change who's running the business long before an actual change of control occurs. Equity swaps and earnouts are another area where optimism can really obscure reality. They're often marketed as alignment tools between the buyer and the seller. But in practice, they introduce operational constraints, they bring about performance pressure, create timing risk that many founders just haven't fully modeled, especially when markets integration or leadership dynamics shift after the close. And finally, Catherine, there's the human element, which is a real blind spot. Most founders haven't really imagined what it means to be relegated to an employee within their own business. You know, losing unilateral authority, operating under new reporting lines, navigating decisions by committee can be far more disorienting than they expect. And preparing for a transaction isn't just about financial readiness. It's about emotional, operational, and identity readiness as well.
- [21:32]
B
I would add one thing to that or maybe two things to that. It's interesting in terms of blind spots I talked about, part of the reason I like this industry is because it's very personal. People are selling businesses that they've built. It's their baby. I think sometimes there's a lack on a seller's part of a realistic perspective of their business. You know, my baby's the most beautiful baby out there. And maybe not accepting that, you know, my business has some warts, to Brian's point, clean those up in advance. If you're thinking about selling and you're not hitting the snooze button, fix that stuff. But some of the ones that we run into a lot are people thinking, well, my business is growing leaps and bounds. But it's not really, it's market growth, it's not sort of new business, it's not organic growth. And I think people today, buyers in particular, are really focused on organic growth. So having a realistic view of how your business is performing and what do you need to be doing to better position it to sell would be sort of one thing that I see. And the other is really just expanding on a point that Brian made of, you know, clean up the corporate deck, you know, and the area where we run into that a lot is, you know, a lot of times businesses have been built and the idea has been we're going to equitize these next gen people or we're going to right size their comp, we're going to do these certain things and they just haven't done it. You know, they've hit the Snooze button, as Brian said, and all of a sudden you get to a transaction and there's not really an efficient way to fix some of those things if somebody doesn't own as much of the business as they should. You know, sometimes there are tax efficient ways to fix that and sometimes there aren't. So getting in front of those things, you know, are important. And oftentimes that is a year, two or even a three year kind of thing to really be positioned to maximize the value. And the sad thing is, as Brian said, sometimes the sellers don't even realize kind of what did they leave on.
- [23:31]
A
The table we talk so much about? Time is, if managed well, is your greatest asset relative to all of what we're talking about here. The closer you are to doing this against a transaction, the more challenging it is. You know, I think there's some generally held beliefs. I'm interested in both your opinions or when it comes to your source of revenue, your clients, that things such as concentration of revenue, maybe you've got one or two big, big clients that provide a big chunk of your revenue, age or other demographics of the clients you work with, those things could have an impact on the perceived value of your business. Would you agree with those things that those are still in play as well too, when acquirers are looking at a business?
- [24:16]
C
So I'll go first. I mean, I think that those could be two factors. You know, you mentioned that time helps us cure a lot of these perceived deficiencies. And it does. But I would combine that with time, discipline and fortitude. If we look at something two to three years in advance, we can identify, you know, where the defects are. Chris is right. Almost every proud founder looks at their business and says, I have the most beautiful baby. Right. They're way smarter than everyone else. They're reading at a very young age. Right.
- [24:44]
A
I mean, they're bilingual by the time they're three. Yeah, right.
- [24:48]
C
And that first due diligence process is often, you know, pretty offensive to them when someone calls them out on some of these defects. And so if an objective advisor is able to get in there, and objective and experienced advisor is able to get in there two to three years, they can identify those defects. And even if they need to plan around something like client concentration risk, well, maybe it's going to narrow the pool of acquirers. But there are acquirers who are only looking for additive Aum and they'll overlook that client concentration because they're adding it to a diversified pool. So they won't necessarily take the discount that someone else may take if that entity is going to survive the transaction. So time discipline, fortitude really does help us address that. But also having a knowledgeable banker who can go out to the pool of acquirers that wouldn't be offended by a client concentration, risk is also very helpful.
- [25:45]
B
Yeah, I mean, I would also say that it's a matter of degree, right? I mean, people are buying a stream of revenues, a stream of earnings, and they want it to be predictable and they generally want it to be growing if there are concentrations or your client base is older and things like that. And it's around the edges, totally manageable. And I don't think people invest a lot of concern in that. I mean, I had somebody who was selling a business a couple years ago where 65% of the revenues came from one client. That's a challenge. You know, that's a structural thing. There's a solution. We restructured the way that the business was paid for. So there are fixes for these things. But again, it's sort of a matter of degree. If it's around the edges, people don't tend to get too fussed and more pronounced problems are harder to deal with.
- [26:33]
A
So, Chris, let's talk a little bit about equity partner capital partners. If I'm listening to this conversation today and I'm thinking whether it's for succession to accelerate growth, as we've talked about, I think I might want to consider a partner, an equity partner of some kind to help me with this. What do you see are the inherent, already sort of built in challenges and opportunities with that in your work with clients?
- [26:59]
B
It's funny, I think a lot of people who were running businesses a few years ago kind of thought the way that I'm doing it is the right way. And the idea of bringing in an outside investor, whether it's a minority investor or even scarier, a majority investor, was kind of a frightening thing that they didn't want somebody else sitting at the table with them. I think that's evolved a little bit. The longer that investors have really been in this space, I think they may be shedding a little bit of the bad name or the scary kind of oversight view. You know, in my experience, a lot of times having a financial investor at the table brings a little bit more discipline to the process. It turns a company from kind of a, you know, a family business to more of an enterprise, which is usually a positive thing. But I also think they generally, in my experience, they have been fairly deferential to management. You know, they're investing in a firm for a reason. The people are running it and they're running it well. The investors are okay with that. They're not trying to displace that. They're trying to pour a little gas on it and help build the fire faster. And oftentimes they're bringing other skills to the table, whether it's financial analysis or modeling or client acquisition and things like that, where they generally have been sort of positive. So I have felt like outside capital, generally speaking has been probably more of an opportunity than people might have expected it to be a few years ago. Now obviously there are challenges that come with that. You are giving up some amount of control, freedom to sort of evolve the business in the way that you want. And so there's a trade off there. But in my experience it's generally been a positive thing for people who have taken on the investor.
- [28:41]
A
I would tend to agree particularly with the appetite for some equity partners to take, as we've talked about, a minority holding. It does not have to be a majority, but also too maybe, you know, I think that an equity partner used to be a really big firm thing, which, you know, being a billion dollar firm these days kind of just makes you more of a teenager than anything relative to how big organizations are getting. But the interest and appetite of equity partners to even look at organizations that are sub billion and be a resource, I think, you know, all those things have added, as you've said, to kind of the evolution of how they show up for the industry these days. Brian, what's been your perspective as you've engaged with organizations that either have existing in some cases maybe even more than one equity partner, but maybe are considering for the very first time, like many.
- [29:30]
C
Lawyer answers in this case, it depends, right? It depends upon the terms upon which you bring them in.
- [29:35]
A
That's the consulting answer too, by the way.
- [29:37]
C
Yeah, it is, it is, but, but it, but it does, right? I mean, so you know, depending upon the terms in which you bring them in can have substantially different impacts on the business. I think much of Chris's perspective that he just shared, I think is from the perspective of the business and the business owner. I think if you look at it through the client lens, I think that, you know, outside investment becomes far more debatable. Has outside investment really made the utility of investment advisors any greater? Right. Has it made the impact that advisors can have on clients lives any better? And you know, I think one of the things that founders and sellers really need to consider in terms of the long term health of the independent wealth management space is, does outside investment, does scale, does bringing in professional management, does converting practices into bonafide businesses or small enterprises, does that really ignore to the benefit of the clients and the long term utility? And I'm not trying to be Pollyanna about it, I, you know, I certainly understand the value. I don't think on balance, any one of us would argue that outside investment has detracted from the industry. But I think if left unchecked, there are reasons to pause and be concerned as to whether we are whittling away what's very special about this independent wealth management space and relegating it to other sleeves of the financial services industry.
- [30:56]
A
So if you look out, let's look out five, 10 years and we sort of continue on our current path, what might we be facing?
- [31:05]
C
I think that we stand the risk to have a business or a profession that's far more commoditized, driven by financial metrics, and not necessarily looked at with the high degree of utility that clients currently perceive wealth management. And that leads to fee compression, which obviously leads to a loss of profitability. And so if advisors can't match that with scale, then, you know, I think maybe, maybe it's probably a good thing that Chris and I are the old guys in the room.
- [31:36]
B
I think, Brian, you make the point that it, you know, maybe firms need to stick to their knitting a little bit in the sense that the reason these businesses have become as well regarded as a lot of them have is the client first mentality. We're going to do what's right for the clients. And I do think that whether you've got a financial sponsor, you know, backing you or not, that can't change. You know, your client first mentality has to be kind of the epicenter of the business if you want it to continue to be well regarded, if you want to be able to continue to recruit advisors and to bring in new clients. And so I don't, you know, hopefully having, you know, financial backing doesn't change that. But I agree with you, it does sort of refocus people on financial metrics and things like that that could divert attention away from kind of the core business in a way that, you know, we need to be sensitive to.
- [32:27]
C
And that's why the terms are so important, right Chris? Because a founder who is bringing in a minority shareholder now has a split fiduciary obligation, right? One with the clients, but also now one to other shareholders. That's something that has to be checked within the governance documents to ensure that they can still have a client centric approach and maintain really the luster that made them special and attractive to begin with.
- [32:51]
B
One other thing that I would say though, in this sort of maybe spirit is, you know, of glasses half full. One of the challenges to this industry has been a little bit that it's an aging industry. Right. Your founders and your advisors are getting older and we're not refilling the bucket as quickly as we need to. And so having some financial support that has been able to sort of create liquidity for founders and create a path for some younger people to continue to service those clients and things I do think has also probably been a little bit of a positive for the industry.
- [33:25]
A
I would agree. So I'm curious in our sort of our remaining few minutes here and Brian, you touched on this earlier. When would you like to get the phone call from, from the business owner, from the advisor that says, hey, Chris, Hey Brian, we're thinking about doing something, right? What's ideal? If it were all up to you, to the both of you, that you would be sort of brought to the table, whether it's an equity transaction, change management, you know, whatever it might be that's driving that.
- [33:55]
C
You know, from our perspective, call is definitely before you call Chris.
- [33:59]
A
How did I know? You might say something like, I love that. That's great.
- [34:02]
C
I think you want to assemble a team of experienced, objective counsel. When it's an idea, right? When it's a glimmer in your eye. Someone who's been through this before is not going to maximize their business opportunity over time. They're going to lay out a path and they're going to create a disciplined approach on the road towards a deal. So that this is something that is founder led, it's intentional, and they feel really good about this transaction on the back end. So I know it seems like a highly conflicted answer, but there's not a time to bring an experienced, objective advisor in too early. Right? Like an advisor, they have your best interest. I mean, that's our obligation. Our obligation is to work in your best interest at all times. Right. There's no qualification to that. And so when they say here's an idea or here's something on my mind, that's the conversation that I think we want to engage in very early.
- [34:58]
B
Yeah, I was going to say call me two years ago before you call Brian. I think there's a sensitivity sometime with clients that they don't want to call a lawyer because lawyers are always on the clock. And I think that's the wrong Answer. I don't think that's really the way I work. I'm sure I know that's not the way Brian works either. We would rather talk to people early on and just sort of a five minutes here, five minutes there. It's amazing how much we can help you move in the right direction with just a very short kind of, you know, it's a relationship building opportunity for us and maybe we. You get a little free advice along the way. And it's the same way, you know, with lawyers, also with bankers and, you know, others. I think talking about it so that you're really conversant in what's going on and thinking about it, you know, a few years before you're really trying to do something is kind of ideal.
- [35:49]
A
And by the way, for me, anyway, the door swings both ways relative to whether you think you're the buyer or the seller. You know, get in front of this. I think we've been talking predominantly through the lens of the seller, if you will. But even if you, you know, envision being an acquirer, that is, as I often say, not for the faint of heart. And you need to have the right people around you. And it's been my experience that it's not really a question of if you have any blind spots in the business for which time and having great counsel can give you that ability to get over, you know, get through those things. Usually there is something, something that if you're looking to really optimize the value, the perceived value of your business or really put yourself in a strong position to win as an acquirer, having quite literally that village around you, those right partners around you sooner than later. So I think that was an easy soft lob question, if you will, a little bit, but one that I think often gets overlooked and to the point both of you have made, you get that phone call sometimes so late in the process that your ability to really bring everything you can from a value proposition gets limited. So appreciate you talking through that a little bit. All right, so we're heading into a new year with all of these topics still very much in play. Maybe a little bit of crystal ball, which I know makes every attorney I know really excited when they ask questions around that. But Chris, as you look ahead in the next year or two, what do you think might be some inherent challenges that we need to be aware of, but maybe even also just continued opportunities based on, you know, the work that you're doing with clients in the M and A space?
- [37:20]
B
In terms of challenges, anytime you're Dealing with people's money, you know, whether it's banks or now, you know, wealth management businesses, you're going to be subject to regulation. Banks have been heavily regulated for a long time. RIAs and wealth management businesses have been more of a lighter touch. As they get bigger and the dollars invested get higher. I think the regulation is going to, you know, every year become more challenging to deal with. And given sort of that. These businesses have historically been fairly lightly regulated. Getting used to that sort of compliance mentality and sort of regulatory view of the world, I think is challenging for these businesses sometimes. And so I think that that's a challenge that we're going to have to deal with. I think it comes up a lot with data security, privacy, cyber. And I also think regulation is starting to slide more into M and A. When the regulators are looking at climate change, client consent processes, are they subject to the new marketing rule, things like that, that. I think that as you look forward over the next few years, that's just going to become an increasing burden in terms of the opportunity. People are realizing that, you know, outside advice, specialized advice for your family planning and for your wealth planning is a really good thing. And so I think there is a natural client development opportunity here where people want this service that really is going to continue to grow as far in the future as I can imagine.
- [38:47]
A
So before I go to Brian, I guess one thing. If you're listening to this conversation today, you're going back into your business. Maybe you're quite literally driving into the office, but one thing that you would suggest or would love to see business owners take a more candid look at.
- [39:03]
B
As a first step, I would say client first. If you put your client first, you're always going to do the right thing. I think in the sense that the regulators are trying to protect your clients. And so if you're really thinking about how do I serve those, this client, how do I do right by them, you're going to be compliant. Hopefully clients are going to find their way to you. So it's going to grow your business reputationally, it's going to be sound. So I think if you kind of stick to your knitting and really put the client first, it's going to be a good thing. It's going to. It's going to guide you in the right direction.
- [39:35]
A
I like that. All right, Brian, thoughts, feelings, reactions? As you look into the future, next year or two, what stands out to you as being inherent challenges or inherent opportunities?
- [39:46]
C
At the risk of echoing what Chris had said, let me take Another topic that I know is top of mind, which I think the challenge and opportunity lies in the ability for advisors to get their finger on the pulse of the health of their business. There's certainly a higher level of awareness around business health today than there was just a few years ago. It's easy to see why owners feel bullish. I mean, revenues have grown, demand strong, capital is readily available. So on the surface, a lot of firms would appear to be healthier than ever. But there are reasons that drive concerns. That tension is becoming more apparent. One of the biggest shifts we're seeing is the sophistication of buyers has advanced more rapidly than that of sellers. Buyers are showing up with clear investment theses, tighter underwriting standards, more refined diligence processes, and a deeper understanding of where the risk actually lives inside these businesses. And sellers, on the other hand, are often still anchoring on historical performance headline multiples without fully appreciating how buyers are evaluating durability, scalability, governance, key person risk. And the result is a growing gap between how healthy owners believe their businesses are and how buyers are actually underwriting these investments. And that growing asymmetry is driving more structured deals. They're modular, but they're more structured deals, more protective terms, more scrutiny beneath the surface. It's not a reason to be pessimistic, but it's a reason for concern. It's a reason for owners to be far more intentional and disciplined about understanding their true business health and preparing accordingly. I mean, they're stepping into the arena with increasingly sophisticated buyers and a greater variety of buyers.
- [41:36]
A
Is that a fair way to put that?
- [41:37]
C
It is a fair way. And that's why the investment thesis of these buyers has become clearer over time. Right. You have asset management firms who are going out and they're looking at these RAAs as a distribution channel. You have aggregators, to Chris's point earlier, going out and just looking for scale. You have other buyers going out looking to expand capabilities. Right. We want to add, had ultra high net worth practice, you know, multifamily office practice. And so I think you want to really have a good understanding of the objectives of the buyers that you're looking at. Prospective buyers you're looking at because your value is going to be different depending upon what their investment thesis is.
- [42:16]
A
Chris, anything you would add on that before we close out or.
- [42:19]
B
No, I agree with all that. I mean, I think the world has changed a little bit. There are a lot of different, different types of, you know, buyers out there and they're looking for different things. The point that Brian made that the buyer sphere has moved faster than the seller sphere is 100% true. And you know, sometimes I think people are called a little flat footed by that.
- [42:40]
A
Such great perspective. Chris, Brian, I want to thank you for your time today. I don't know of really very many client conversations we're having globally for that matter, but certainly here in the US that doesn't touch on some of the things that we've talked about here today. So thank you for sharing your time and your knowledge. For those of you listening, you can absolutely find Chris and Brian on LinkedIn and many of the usual social media suspects, if you will, out there. The digital suspects if you'd like to know more about how Dimensional is working with financial advisors and financial professionals, you can check us out@dimensional.com and with that we'll catch you next time. Thanks everyone.
- [43:17]
D
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