In a profession marked by passionate views about conflicts of interest, there is an M&A advisor offering her services without the traditional “success fee” for the sale of their firms.
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Jess Polito, the founder of M&A advisory company Turkey Hill Management, has been spreading the gospel of retainer fees instead of commission payments for the past five years since launching her firm. Striking many of the same notes as planners who use flat fees, hourly charges or other retainers rather than the traditional advisory rate of 1% of assets under management, she said she believes her firm is the only one in wealth management M&A that collects payment solely on a tiered monthly schedule based on the size of the firm.
“I just wanted to create a firm that more closely emulates the clients that I serve,” Polito said in an interview. “If you’re only getting paid based on the value of the deal, it’s hard to provide unbiased advice, in my opinion, because every time you look at the dollars that are being offered, it’s hard not to look at the bank account.”
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Figuring out the fee
Typically, M&A advisory firms or investment banks negotiating deals do charge monthly retainers, but those payments may or may not get credited toward the success fees of 1% to 4% of the size of the deal. The traditional representation usually winds up costing anywhere between 3% and 10% of the value of the transaction, Polito said. Her firm’s website lists 32 recent clients whose businesses have sold to 27 different acquirers since November 2022.
Turkey Hill Management
In addition to the flat fee arrangement, Polito has targeted other aspects of M&A advisory work in which to reduce the conflicts. The firm will never launch a conference, because such events are “expensive to put on, and they rely on sponsorships,” that could pose an impact to future deal negotiations, she said. In addition, the firm restricts its work to representing sellers, other than certain “one-off” transactions like one in which an advisor is buying a retiring friend’s book of business, she said.
“We don’t get paid by anyone other than the seller,” Polito said. “That way, they never have to question whether the advice we’re providing them is in their best interest.”
M&A advisory firms on either side of deals have “all different ways of doing it in the market,” according to Brandon Kawal, a partner at management consulting and transaction advisory firm Advisor Growth Strategies. He has “a ton of respect” for Polito, and her firm “does a fantastic job” representing sellers, he said. It’s important for advisors who hire outside experts to think through the scope of work and outcomes that they’re seeking in order to decide whether a retainer, a success fee or some combination of both would be best for them, Kawal added.
“It’s really more about ensuring you have the right level of alignment with your advisor,” he said. “I think it’s situational. I think there’s room for all different fee models, and I think advisors have choice.”
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Kitces interested in M&A fees
But Polito has been pointing out how her firm’s fee is different from the traditional M&A advisory charge for years. In a 2023 episode of the “Financial Advisor Success Podcast,” she explained the concept to planning entrepreneur and writer Michael Kitces by noting that her fee was usually ending up at around $15,000 per month from the start of the relationship until the signing of the deal agreement or the close. Over a 10-month span, that would end up costing $150,000. In contrast, a traditional investment bank could collect a minimum of $300,000 to $400,000, although she acknowledged that there are “different structures” across the industry.
Similar to the many topics they discussed over the nearly two-hour conversation, Kitces sounded intrigued by the idea. Success fees “are functionally commissions at the end of the day,” he noted. However, advisors “don’t necessarily mind paying a commission,” considering that “someone’s got to execute my thing. I’m going to the darn finish line and getting the thing,” Kitces said. On the other hand, both parties to the deal are seeking the best fit after close.
“And now all of the sudden you’ve created an environment where your investment banker really wants to get paid, so they’ve got a very hefty incentive to get the deal across the line, as well as just when you create a world where they’re getting paid on a percentage of deal value: ‘Oh, you can get paid a little bit more as long as you sign a longer non-compete? Well, that doesn’t affect us. So, take the higher deal. We’ll get a better success fee,'” Kitces said. “Not to paint everyone doing bad or nefarious stuff at all. But, just as you highlighted, there is a conflict of interest that gets there in a world where I don’t think anybody who’s selling wants to take a wildly lower price or anything, but you don’t always pick the top bid because sometimes it has contingencies or strings attached that are not as compelling, and it can get a little challenging when the person who’s ‘advising’ you on the deal gets paid more if you take the top bid and not the other ones.”
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The philosophy
Still, Polito pointed out in the interview with Financial Planning that her firm’s fee model isn’t “giving up on economics” altogether, and advisors who hire Turkey Hill can cancel the agreement at any time without any delays or penalty payments. She strives to focus on the fit of the potential buyers, rather than “running a broad auction process,” she said.
“The processes that we run tend to be very competitive, because everyone that is participating knows that they’re up against firms that look and feel like them,” Polito said. “If you can get the fit right, the buyer won’t be willing to walk away over price. So that’s the philosophy around how we run deals.”
