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When James, a seasoned dealmaker from a leading RIA aggregator, met with Robert, the founding partner of Pegasus Advisors—a firm with $2 billion in AUM—he faced a crucial decision: Should he make the first offer?
This moment—deciding whether to start with an opening offer—can set the tone for the negotiation. Research highlights the psychological and strategic significance of the Anchor Effect, though anchoring isn’t always the best approach.
Let’s explore when to go first, when to hold back, and how James might position his proposal to Pegasus Advisors.
The Power of Anchoring
The first offer often acts as a psychological anchor for subsequent discussions. Studies show that even experienced negotiators are influenced by the initial number. A high first offer can elevate the negotiation's ceiling, while a low offer can diminish expectations.
For instance, in financial services, expressing industry-standard values early enables the offering party to benefit from anchoring while seeming fair. James could start with a structured offer supported by comparable deals and market comparisons, leading while showcasing professionalism.
When It’s Smarter to Wait
A strong counterpoint exists: let the other side go first when the value range is unclear or understanding their motivations could provide leverage. This is particularly true when:
- The other party, Robert, is emotionally invested in the business.
- Valuation varies greatly due to qualitative factors like brand equity and client retention.
- You sense the other side has an exaggerated sense of their value.
Letting Robert speak first may reveal his motivations, which could help James create a deal that fulfills Robert’s goals without overpaying.
Three Factors That Tip the Scale
So how should James decide? Here are three decision filters based on negotiation science:
1. Information Asymmetry
James has an advantage in anchoring if he possesses stronger data regarding market comparisons and deal structures. If he believes Robert lacks clarity, taking the initiative could reinforce expectations in his favor.
2. Bargaining Style of the Other Party
Understanding Robert’s style is essential. If Robert is a Collaborator, he may respond positively to a thoughtful first offer supported by standards. However, if he is more Competitive, he might counter aggressively, suggesting James should hold back.
3. The Role of Standards
Backing up an initial number with credible standards—multiples from other RIA deals or established fee structures—offers a solid justification, upholding credibility while establishing a favorable anchor.
What Should James Do?
If James is confident in his valuation and believes Robert values transparency, a thoughtfully crafted opening offer could be appropriate, setting the stage for the deal. However, if Robert’s motivations are unclear, holding back might be wiser. Letting Robert make the first move could uncover an unexpected starting position or willingness to concede.
Takeaway
Anchoring is powerful, but timing and context are essential. In negotiations—especially high-stakes ones like RIA acquisitions—the initial offer is more than a number; it’s a signal. Understanding what that signal communicates is crucial for positioning in the deal.
Related: When Deals Stall: Proven Strategies to Reignite Agreements