In the wake of upheaval in the industry, wealth management firms who want to expand are weighing the pros and cons of acquisitions versus organic build-outs.

Deciding whether to buy an existing firm or to expand by building out organically is one of the most critical evaluations a wealth management firm has to make.

And while the buy-versus-build debate is not a new one, the ongoing upheaval in the industry in the wake of the financial crisis has made it more relevant than ever.

Some firms, like New York-based Evercore Wealth Management are buying; others, like Boston-based Silver Bridge Advisors, are building out.

“It’s a lot safer to grow through acquisition,” said Doug Dannemiller, senior analyst for the Aite Group in Boston, a consultancy. “It’s easier to make a determination on what the financial impact will be because the business is already in place. But if you’re investing money in a de novo business, there are tons of unknowns,” he said.

“The questions firms have to ask are what is their time line and what are they trying to accomplish?” said investment banker Liz Nesvold, managing partner for Silver Lane Advisors in New York. “If you buy you can expedite growth much quicker. If you build, you have to make a considerable capital commitment, you face a three-year time line, and you have a long sell-cycle for wealthy clients. But if it works, you can have much higher returns on your capital investment.”

Ben Ledyard has been on both sides of the issue.

As a managing director at Wilmington Trust for 13 years, he was part of the due diligence team that vetted major acquisitions for the firm, including Balentine & Co in Atlanta and Grant, Tani, Barash & Altman in Los Angeles.

As director of wealth strategies and mid-Atlantic regional director for Silver Bridge since September, Mr Ledyard is overseeing the firm’s new office in Delaware, which is being built out organically.

“There is no simple answer to buy vs build,” he said. “To best answer this question is to understand the objectives, goals, history and current market presence of the firm looking to expand.” If timing is important, then buying is quicker, Mr Ledyard said.

But the arguments against buying, he points out, include integration and branding issues and disruption that could lead to client dissatisfaction.

What’s more, Mr Ledyard added, "If the move occurred for any reason other than gaining access to key employees, the firm may suffer morale issues, if not addressed immediately.”

But if the cultural fit works, then growing via acquisition makes a lot of sense, say executives who have taken that route.

“The key to making an acquisition work is compatibility, compatibility, compatibility,” said Robert Morse, chief executive of Morse, Williams and Company, whose firm was just bought by Evercore. “You must have a similar philosophy.”

Indeed, one executive who has worked on numerous acquisitions said wealth management firms can be “very tribal, with their own ways of operating that are not known for many years.”

GenSpring Family Offices’ joint venture last year with Kiawah Capital in Charleston was a good example of two firms joining to grow a presence in the market that would have otherwise been much more difficult to do separately, said John Elmes, senior partner at GenSpring.

Combining forces with another firm does mean “gaining a lot of assets, advisors and relationships all at once,” according to Steve Prostano, chief operating officer for Silver Bridge.

In fact, he and Mr Ledyard are considering acquisitions if a strategic fit can be found.

“Growing organically is a slower process,” Mr Prostano said, “but you have more control.”

Ms Nesvold agreed, but warned that firms expanding de novo had to be fully committed.

“A classic mistake is to put your toe in the water but back off when there’s the slightest ripple as opposed to jumping in with both feet," he said.

While each firm decides to buy or build based on their own needs, said Mr Ledyard, the reasons for expanding in the first place are usually similar, beginning with geographic expansion and gaining access to new clients and a new market

“All the technology in the world can never overcome the personal touch, especially in wealth management,” he said.

But ideally, the distance between a new office and the home office shouldn’t be too great, Mr Ledyard added.

“Silver Bridge wanted to expand distribution beyond New England, and Delaware is a little far, but not too far,” he said. “I’ve found the longer the distance, the less connectivity you have.”