If you’re like most RIAs, one of the first pieces of advice that you share with nearly every client is to keep their portfolio diversified. In fact, most of us learned that “don’t put all your eggs in one basket” message long before we began careers in the investment field.

Have you applied that same concept to your firm? I’m not talking about how you manage assets for your clients. What I’m talking about is looking at your client base with the same critical eye you encourage your clients to use when choosing investments.

For example, are most of your clients about the same age? That’s not promising, because there will come a day when they retire en masse and they’re not all that eager to buy more investments. Are all your clients from the same small geographic area? What happens if your community suffers an economic downturn? Will you risk losing a large number of clients? Maybe most of your clients go to church with you. Maybe they work for the same large employer.

No matter what the situation, if the bulk of your clients can be characterized as part of the same group, you’re making the same mistake a novice investor makes when he sinks 95 percent of his funds into a single stock.

Diversifying your client base provides the same risk management benefits as diversifying an investment portfolio. You can achieve that kind of diversification through marketing efforts, but a more immediate way is through an acquisition of another firm. In one transaction, you can dramatically diversify your client “portfolio.”

Perhaps you can buy a firm in a nearby town. Or maybe a firm that’s had success with an entirely different group of people. Or it could be a firm that needs diversity just as badly as you do. No matter the reason, diversifying your client base through an acquisition can be an excellent way to significantly increase your revenues while simultaneously reducing your business risk.

If you’re thinking about this strategy, now’s a great time to pursue it. As the average age of RIA owners climbs into retirement territory, there are many owners who are eager to pursue an exit strategy. Through an acquisition, you can help them solve their short-term goals while giving your own business a healthy, long-term boost.

About Oak Street Funding

The materials in this paper are for informational purposes only.

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