RIA Valuation Insights

June 30, 2023 Transactions

Dust Off That Buy-Sell Agreement!

An Outdated Contract Is Hazardous to Your Wealth

This week’s post discusses the importance of regularly reviewing and understanding the terms of buy-sell agreements for RIAs, as these agreements can often become sources of contention when unexpected events occur. We highlight issues related to determining the transaction price during a buy-sell event, with scenarios such as fixed-price and formula pricing causing potential misunderstandings or disputes. We also offer advice on avoiding such conflicts, such as getting your RIA valued regularly to manage expectations and drafting fair pricing mechanisms, urging owners to familiarize themselves thoroughly with their buy-sell agreements.

June 22, 2023 Practice Management Transactions

4 Considerations for Your RIA’s Buy-Sell Agreement

Understanding the intricate complexities of buy-sell agreements can provide a basis for shareholder transactions and mitigate costly legal disputes down the road. We explain the pitfalls of rules-of-thumb based valuation measures, the importance of the ‘As Of’ date, the necessary qualifications of your appraiser, and how updating your agreement annually can manage expectations and avoid surprises. Stay informed and avoid the inevitable challenges by familiarizing yourself with these key components of a well-crafted buy-sell agreement.

June 16, 2023 Transactions

Purchase Price Allocations for Asset and Wealth Manager Transactions

While closing a deal is an important milestone, it’s not the end of the process. After the ink dries on the purchase agreement, there’s a host of issues that the acquiror must address regarding the integration of and accounting for the acquired firm. In this blog post, we address one such post-transaction accounting issue. After a transaction, acquirers are generally required under accounting standards to perform what is known as a purchase price allocation, or PPA. This post explores the purchase price allocation process as it relates to acquisitions of assets and wealth management firms, highlighting the valuation considerations surrounding intangible assets like customer relationships, tradename, non-competition agreements, and the assembled workforce.

June 9, 2023 Current Events Industry Trends Practice Management Transactions

ISO: Cheap Capital

All Models Are Wrong, Some Are Useful

The much-ballyhooed consolidation trend in the RIA space is in a state of transition. Many acquisition platforms, fine-tuned in an era of zero interest rates and plentiful equity capital, are challenged in the post-ZIRP environment. Picking up on economist George Box’s observation that “all models are wrong, some are useful,” it’s worthwhile to survey the acquisition landscape and see what worked and what still works.

May 26, 2023 Practice Management Transactions

Four To-Dos Before You Sell Your Investment Management Firm

Considerations for Every RIA Owner

The intricate journey of selling a business you’ve built can be daunting, filled with complex emotions and countless considerations. This process, particularly in the investment management space, requires thorough preparation, strategic thinking, and an understanding of the many dynamics involved. In this post, we explore four critical areas that every investment manager must consider: developing a pragmatic pricing expectation, establishing a solid rationale for selling, preparing your firm’s financial documents, and understanding the tax implications of different deal structures.

May 19, 2023 Current Events Transactions

The Devil in the Details

Diving into the CI US/Bain Transaction

CI Financial’s pivot from a planned IPO to the sale of a 20% convertible preferred stake of its US wealth management division to a consortium of institutional investors is not only a significant move for CI Financial but also sends ripples through the wealth management industry. In this post, we explore the details of this transaction, the potential consequences for CI Financial, and the broader implications for the wealth management industry.

May 11, 2023 Industry Trends Transactions

RIA Dealmaking in a Post-ZIRP Market

Terms Bridge Seller Expectations and Market Realities

The secret of selling your RIA for peak pricing lies in the terms, but it’s not as straightforward as it may seem. Investment management transactions these days involve creative deal terms, risk-sharing and evolving market conditions that keep the market bustling, despite a host of economic challenges. From managing buyer-seller relationships to balancing risk and reward, we explore how industry players are adapting to maintain the appearance of peak pricing, while carefully guarding against market downturns. Find out how the art of the deal is being redefined and learn how to navigate the market to achieve your transaction goals.

May 5, 2023 Current Events Industry Trends Practice Management

Common Valuation Misconceptions about Your RIA

Old Rules of Thumb, Recent Headlines, and the Endowment Effect

The endowment effect has an impact on your RIA and oftentimes rules of thumb and recent headlines can lead to overvaluation. We share the nuances of valuing your firm, from assessing cash flow, growth, and risk to understanding the relevance of non-systematic risks. Uncover the factors that truly influence your RIA’s value and learn how an independent valuation can help you make informed decisions for your firm’s future.

April 28, 2023 Margins and Compensation Practice Management

RIA Margins: How Does Your Firm’s Margin Affect Its Value?

Curious about what makes a firm’s margin a powerful indicator of its performance? We explain the “typical margin” for RIAs and how different segments of the investment management industry have varying margins based on their business models. Learn why future margin prospects are more significant than the current margin when evaluating the worth of an RIA and how to protect margins in a rapidly changing industry, and how to generate stable, improving margins that lead to higher valuation multiples when the firm is eventually sold.

April 21, 2023 Asset Management Current Events

Challenging Year Ahead for Asset Managers

Asset Management Firms Struggle as Market Downturn and Fund Outflows Persist

2022 was a tough year for the RIA industry and the stock market, as persistent inflation, rising interest rates, and geopolitical tensions shook the economy. Asset management firms felt the pressure, but what factors drove this decline and how did it impact the industry? Discover the challenges faced by both active and passive funds, and explore the outlook for asset managers in the face of an uncertain future.