Dave Welling: How Mercer’s M&A Push Made It a $70 Billion Juggernaut

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Welcome to Barron's The Way Forward. I'm Greg Bartlett, and my special guest is Dave Welling, the CEO of Mercer Advisors. The firm, which oversees about $70 billion in client assets, was ranked first in Barron's Top 100 ranking last year and has been in the top 10 8 times in the past decade. Today we're going to talk about M&A, a subject which Dave is well qualified to discuss. Welcome to the podcast.

It's great to be here. Thanks for having me.

Oh, my pleasure. So M&A is a topic of perennial interest, but it's especially of the moment and important, and you are a fantastic person to talk about it, given your company's track record. Before we dive into the nitty-gritty of where we are today and where you think things are going, tell us a little about your background, how you got to Mercer, and what you're doing now.

Sure. I've been around the independent registered investment advisor industry for almost 30 years. So in the late '90s, I joined the Schwab organization worked as part of that group that supports advisors all over the country, was there 12 years, and feel very fortunate to have built a network, build relationships, and build a great appreciation for the work that advisors do all over the country. I think we know in this part of the industry, we act with our clients' best interest at the center of our hearts and, you know, take that responsibility very seriously. And there's a lot of other choices out there that consumers could make. So I've been an advocate and a supporter of advisors all over the country. I was with Schwab for 12 years, then had an 8-year stint in wealth technology from just shortly after the 2008-2009 financial crisis up until 2017 when I joined Mercer Advisors. So when I joined Mercer, we were just under $10 billion in assets under management, a couple hundred employees, and we've seen significant growth since then to get to the $70 billion today. So partnerships that we form, we think of it as partnerships versus M&A, are part of that. But also just the hard work every day of honoring the promises that we've made to our clients and winning the honor of serving the next new client is a big part of what has led to our success. And as we look for partnerships, we try and find people who think about the world the same way that we do.

When you seek these partnerships, tell me a little more about being aligned or thinking the same way, and to what extent are these with people who you have a past with of sorts or unknown quantities?

Sure, yeah, and purposefully we use that word partnership. We are a partnership. We have 1,300 employees, 500 owners. That includes people who've joined us through M&A partnerships, but it also includes employees who applied for a job and got that job. So I think when we have the conversations with firms, you know, it's both, are we a match for them and are they a match for us? People ask all the time, 'cause we've done acquisitions all over the country, Are you focused on the Carolinas? Are you focused on, you know, Massachusetts? Are you focused on certain places? And our answer is we're focused on vision and values. And that starts with have to be fiduciaries, planning centricity, and wanting to serve clients are very much at the center of that.

Tell me about the landscape now, 'cause I mean, you've been doing this for a while and now there's a lot more competition. Given the current landscape, I mean, all things considered equal, does this lean as a benefit towards buyers or sellers, or is it not? Really lean either way.

Yeah, I think it's, people will say it's a seller's market, but that doesn't mean that both sellers and buyers aren't very serious and intent about making sure it's a good match, right? We think of this as taking over somebody's life's work and taking over the promises that they've made to all of their clients. And so these are, you know, very long sessions. Just recently, you know, several hours with a firm who's considering joining us. And we're seeing whether we're going to be good roommates after that process and going through a lot of detail and finding what, how can we make things better for clients? How can we make things better for the team? And we're asking questions from the Mercer side as to what's challenging for you? Where do you need help? What do you wish you had that you didn't have? What service, what offering, what capability, what opportunity would be, attractive to you? And we're trying to tune in the conversation to exactly how this can be additive. We're not interested in just buying up firms for the sake of buying up firms. We're actually, we're looking at it as a way to extend the execution of our vision and mission, which is to be the best financial planning firm in the country that's operating under a fiduciary standard for our clients.

And what are you hearing from them when they say what they're missing and when they ultimately decide to work with you, go with you, Is there something that typically is, yeah, that's what we want from you?

It's, you know, what we like to hear, and it's very common, is firms are looking for more services and value to add to their clients. They are looking for opportunities for the talent on their team to grow their own careers and to ascend. And they want to make sure that they find somebody who shares the same values as them. So the services, could include things like we have an embedded tax team, we have an embedded estate planning team, we have a robust investment offering. It can be different things for different firms, but, you know, they often, you know, don't have some of those services or haven't extended them as far as we have. And I'd say most frequently they're looking to hand over quite a few hats of the responsibility of running the firm, dealing with technology, dealing with compliance, dealing with, performance reviews, 'cause most of them, when they got into the business in the first place, it was to serve clients, and they have a passion for serving clients and grow, so they're looking for somebody who can take over all that stuff. But today it's a lot more than just back office help and administrative help. It's really amplifying the work that they can do for their clients and providing opportunities for employees. And I think that's where we find great unions and a very consistent message from what sellers are actually looking for.

You've talked in the past about how employee ownership can support a mission and, if you will, on a one-team culture. How do you define the culture? And then before a deal is made, how do you gauge the likelihood of it being a good fit? I mean, some of it might be intuitive and chemistry, but intangibles, if you will, and in other things are more tangible, of course.

Yeah, so you have to break bread and spend time with these people, right? And, you know, get into, their arena, get into their world, and not just the firm in a generic sense, but every individual that is going to be part of the decision. And when you do that, you get to see some consistency of not only what they want in the future for themselves, but how thoughtful they are in the process about, well, what are my clients going to get out of this? What is my team going to get out of this? And those are notes that we're looking for. If we don't hear them, those would be reasons for us to walk or run away. And when we do hear them, we start to hear people who are stewards of not only their clients' financial lives, but are actually trying to act in the best interest of their employees. And very often we think those are places that we can really help. Conversely, it's not just all about all of Mercer, what Mercer can provide to them. They often have expertise, they often have capabilities, and most importantly, in communities that we may not have a presence in, they have authenticity, right? They have the local knowledge, the local presence, the local involvement in nonprofits, boards in the community that in a way that we possibly couldn't create overnight. We could find the talent and send the talent into their community, but we wouldn't have that authenticity. And to be able to tune into the unique needs of the market. And so that's, what they're bringing, right, to the table in terms of capability, knowledge, wisdom, and their legacies.

In terms of the size of deals, correct me if I'm wrong, but a lot of the deals tend to be under a billion, is that right, or?

It's a range. We've done from $40 million to $5 billion. Okay. And so I think that's another thing where we talk to those firms, whether at either end of that spectrum, if they happen to be, quote, smaller in AUM metrics, well, why would you be interested in a, person like me. There's a couple of advisors in Bend, Oregon that just joined us. Both of them were under $100 million. They knew each other, but they were not directly connected. It allows us to have a presence in that community. What's by far most important, are you planning-oriented? Do you act as a fiduciary? And are, when we use culture and values, the shorthand phrase at Mercer is there's only two rules, right? One, take care of the client. To take care of each other. And it speaks to client centricity and it speaks to a philosophy of teamwork. And I talk about that as a compass that points outward rather than a compass that points to self. And when we find people that share those values and, you know, care about the things that we care about, it doesn't matter how big the practice is because they will be a great member of the team.

And tell me a little more. I mean, you've made it a point to emphasize building relationships over transactions and, Expand on that.

Yeah, well, I think, you know, it's critically important, you know, to be able to look back 3 years down the road, 5 years down the road, and have the clients and team members that joined us through a partnership say, this was the great decision, this was the best decision that we could have made. And the work that we do leading up to the transaction, which there is a transaction, that's just an event, that's just a milepost, that is a change in ownership. They become part of our team. They become, in many cases, equity holders in the business as well. And, but we wanna do more than that, right? The work actually starts after that. And it's starkly, starkly different than it is in other industries that have a very different context. There are a lot of clients that are impacted by this decision that just find out about it on a random Tuesday when they get a call from their advisor, or then subsequently a letter in the mail telling this is happening. We need to have done the work to say, here's the plan, here's why we did this, here's how we can help, and here's what doesn't change, right? To, you know, in many cases, the firms have done excellent work, really in all cases, excellent work serving their clients. So it's just that, like, what doesn't change is a critical part of that message as well.

For an advisor listening who might be looking to make a deal, but then maybe they don't have much experience on this count, What would be some advice you'd have for them to increase the chances of having a successful partnership?

Yeah, well, I'd say start the conversation, right? Start the conversation even if you're just exploring. You know, we think of ourselves, our approaches as consultants. You know, I tell lots of people, I wouldn't sell now. Like, I would wait based on what you've told me. Why? You know, what are you really looking for if I'm not hearing things? And trying to just provide them, if we can provide some wisdom, some guidance, or share some of the things that we've stumbled over on our route to get to where we are. And so that's part of it. Just start the conversation with folks. Maybe just not go with the first house you walk into, right? Because even if it's a perfect house for you, you might not recognize how perfect it is until you've kind of looked around a little bit. And so there are a lot of options out there, they're different, and, you know, get to know the people. And then so by the time you're actually ready to make a decision, you feel really prepared.

Right, you have a lot of reference points and you can see the bigger picture, if you will. In November, your company said that it had more than, I believe, 40 active deals in the pipeline. Given the level of activity, you really have a unique perspective. Is there anything you can say that might not be conventional wisdom about what you see coming down the pike, or is conventional wisdom more or less capturing the state of things as you see it?

Yeah, I, I think question that many have that have been active in this space for a while is when do we see a tipping point, right? In terms of these partnerships and these relationships, despite the pick your number, 15,000 REAs, 18,000 REAs, there's a lot of acquisitions that we've done of actually folks who are independent reps, contractors working with a broker dealer that basically are an RAA already. They may already be a hybrid firm. And so there could be thousands, right? And I think why would that happen? One, often these firms are looking for some sort of succession plan of one or more owners, but 2, 3, 4, and 5 now is, I think we've proven, and some of others that are out there in the space that are more of an integrator have proven, there is value in joining a larger entity that not only has scale, but actually has quality, right, with that scale to be able to amplify the client experience, to be able to amplify opportunities for employees, and to be able to ignite growth where you may have one majority owner of a firm who's ready to retire, but the other junior partners are ready to go, right? And so, you know, these kind of transitions can be a great way to solve the problem of the first founder, but then solve the problem of the folks who wanna ignite growth and invest back in the platform, invest back in the business, and wanna kind of create their own mark, right? By hiking the next peak.

We're almost outta time, but are there any final thoughts or anything important you think that we have not touched on?

Yeah, I think, you know, we touched on equity earlier. I'd love to touch briefly on that, but I think, you know, the way I would convey this to firms, it's not a finish line for you, right? It's a milepost in a career. And you can make it what you want, right? You can make the career as long as you want, and things change, obviously. And it can really be in that milepost, it could be a catalyst, right? And so, and you're still owners, right? And so at our firm, I mentioned there's 500 out of our 1,300 employees that are equity owners. Every full-time employee of the company has the opportunity to buy in. So these can also be opportunities through the transition, through the transaction, for Mercer to be able to use some of the capabilities we have, some of the equity instruments that we have to get equity into every employee's hands, right? And that can be a really positive message. And the benevolent owners, right, have maybe tried to do that, done that a little bit, but it's a fair amount of work to set up the legal structure and set up the capabilities to be able to do that for employees. So there's a lot of things that can be tuned into this that actually create it as great. We've made it to the milepost, we've made it to the base camp, what's the next stage of the journey? And we're excited to have those kind of conversations conversations.

Is that process kind of a well-oiled machine now, given that you've been doing this for some time? I mean, was there a learning curve of sorts to getting to this point, or?

Oh, absolutely. Like globally, like, you know, we'll eclipse, you know, in March, the 100 partnerships, 100 acquisitions. There's lots of things you learn from doing things that many times, probably too many to share in the minutes that we have left, But I think it's lots of learnings along the way specific to equity. It's just so powerful. It can be transformative to people's careers. You need to educate the employees that you're granting equity to, but the power of once people feel like an owner, because they are, in terms of building culture, building the fabric, building a culture of teamwork, and extending things that almost, always are resident within most RAAs within the team that they've built, but extending that to 100+ locations across the country. So their team exponentially multiplies of people who are really incented and motivated to collaborate with each other to help each other be successful.

Yeah, and that's gotta be, I mean, incredibly important just to calibrate it precisely so that you're both winners, right? So they're incentivized to do great and it comes out win-win, so.

Absolutely. Absolutely.

Yeah. Excellent. Well, it's a great way to wrap it up. So thank you so much for joining.

Yeah, I appreciate the time. Appreciate the interest and look forward to more discussions.

Excellent. Thank you very much. My guest has been Dave Welling. For more podcasts and the latest wealth management news, visit barons.com/advisor and be sure to check out The Way Forward: Next Generation, a new podcast that puts the spotlight on the emerging leaders who are shaping the future of financial advice. For The Way Forward, I'm Greg Bartolis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.