Category

Current Events

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September 13, 2024

Does This Presidential Election Matter to the RIA Industry?

For some reason, we get this question every four years or so: does this election matter to the RIA industry? Let’s start by saying that with all of the hot-button issues the candidates are currently squabbling about, the RIA industry does not appear to be top of mind for the former president and current vice president. We, therefore, have to step back and think about what either candidate’s election would mean for the broader financial services industry, taxes, and stock market returns, which we cover in this week’s post.

August 30, 2024 Practice Management

Funding Your RIA’s Buy-Sell with Life Insurance Just Got Much Harder

SCOTUS Compels Closely-Held Business Owners to Review a Potential Problem in Their Ownership Agreement

As long as I can remember, RIAs and other closely-held businesses have used corporate owned life insurance to fund redemption provisions in buy-sell agreements. That practice is now in doubt, as the U.S. Supreme Court recently ruled that entity-purchased life insurance is additive to value for fair market value purposes. Has SCOTUS rendered what was long-standing conventional wisdom useless, or is the ruling subject to interpretation? Time will tell. For now, readers of this blog post will want to study the ruling and its implications for their own buy-sell agreements.

June 21, 2024 Transactions

Ken Fisher’s Deal Is Remarkable Because It Isn’t Remarkable

Fisher Investments has for many years been the Toyota Corolla of the RIA space. Not fancy. Not interesting. Not exclusive. Advertising for sales leads. Mass affluent customers. Meat and potatoes wealth management. Nothing remarkable, except for an exceptional growth story that led to a huge transaction.

June 7, 2024 Transactions

Why Haven’t Higher Interest Rates and Inflation Derailed RIA Dealmaking Activity?

Just over 30 years ago, the Memphis Area Transit Authority (“MATA”) made the dubious decision to construct a trolley line traversing most of the city’s downtown area, and it hasn’t gone well. If MATA could do it all over again, I suspect they would permanently closed the trolley system altogether, given the issues they’ve had over the years. Last year, many RIA industry participants expected a similar cessation to dealmaking in the sector following the adverse impact of higher interest rates and inflation on investment managers’ AUM balances and profitability in 2022.  Fortunately for the industry’s bankers, these economic headwinds haven’t derailed the sector’s M&A momentum.

February 22, 2024

Will RIAs Be Subject to Anti-Money Laundering Rules?

The Financial Crimes Enforcement Network (FinCEN) is proposing a rule that would require investment advisors to comply with Bank Secrecy Act requirements, including implementing anti-money laundering controls and filing suspicious activity reports. Unlike previous attempts, this proposal does not hold investment advisors accountable for identifying their clients, but FinCEN is considering a separate proposal with the SEC for future customer ID requirements. With an increased push from regulators and illicit actors’ growing utilization of RIA intermediaries for AML purposes, the investment advisory sector may soon face stricter regulations, particularly regarding customer identification.

January 26, 2024 Industry Trends Transactions

Quality of Earnings Analysis for RIAs

The M&A space in the RIA sector has seen a marked increase in transaction activity over the past ten years, along with advancements in its supporting infrastructure. Professionalization of the buyer market has led to a more detailed examination of target companies’ earnings. Mercer Capital’s whitepaper highlights the importance of Quality of Earnings (QofE) analysis in presenting a more accurate picture of a company’s earnings and cash flows for both potential buyers and sellers.

January 19, 2024 Industry Trends

Navigating the Shifting Tides

Trends Shaping the RIA Industry in 2023 and Beyond

In 2023, the RIA industry witnessed growth and rebounded from the previous year’s slump, despite earlier concerns about inflation and high interest rates. This growth occurred alongside a shift in the financial landscape, where public firms in wealth management underperformed compared to the broader market and alternative asset managers. Additionally, RIAs have found the importance of data use, with many advisors using data to enhance portfolio decisions, operational efficiencies, and client relationships.

December 1, 2023

Munger Games: Charlie Munger’s Legacy

And His Common Sense Approach to Business and Investing

As a tribute to the late Charlie Munger, we reflect on his legacy and wisdom. His distinctive perspective on cryptocurrency, diversification, and financial projections offers a unique approach to managing investments, contrasting with conventional practices. We provide our thoughts on his lasting Munger-isms.

October 13, 2023 Industry Trends Transactions

RIA M&A Update

Although inflation has begun to subside and the stock market has rallied after a turbulent start to 2023, elevated interest rates and macroeconomic uncertainty have contributed to a slight decline in deal volume so far in 2023. Despite the slight decline in deal volume, total transacted AUM increased. In this week’s post we discuss some of the contributing factors of this, and what it means for your RIA.

June 9, 2023 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 19, 2023 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 5, 2023 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 21, 2023 Asset Management

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.

March 31, 2023 Practice Management

An RIA’s Independence Is Valuable

Selling Control Is Losing Control

Harry Truman kept a sign with his personal slogan, “The Buck Stops Here,” on his desk. The reverse side of his sign, which faced the President, says, “I’m from Missouri.” Specifically, Truman grew up in Independence, Missouri, and took pride in his hometown. RIAs would be well advised to value their independence as much.

February 17, 2023 Industry Trends Wealth Management

As Deal Momentum Slows, What’s Next for Wealth Management Consolidation?

Early last year, as market conditions began to deteriorate, we (along with many others) predicted a coming slowdown in RIA M&A activity. Despite this environment, we were initially proven wrong: RIA M&A activity seemingly defied gravity as the pace of deal activity continued to keep pace with record 2021 levels. Now, the data suggests that deal activity is beginning to lose momentum. So, is the slowdown here to stay?  What does this mean for the future of deal activity?  In this week’s post, we discuss a few predictions for the year ahead.

February 10, 2023 Asset Management Industry Trends

Investment Management Is a People Business

Who’s in the Driver’s Seat?

Investment management is a people business, and there are aspects to a people business which do not yield to financial modeling. This week, Matt Crow addresses industry conundrums for which there are no easy answers.

January 26, 2023 Margins and Compensation Practice Management

What Does the FTC’s Proposed Non-Compete Ban Mean for RIAs?

Earlier this month, the Federal Trade Commission (FTC) announced a proposed ban on non-compete agreements in employment contracts.  If enacted, the proposed ban would prohibit a common provision of employment agreements that employers use to limit employees’ ability to compete.  

November 18, 2022

Buyer’s Remorse? CI Financial’s M&A Binge

On the earnings call last week, CI Financial reiterated intentions to separate its U.S. wealth management business and Canadian asset management business through an IPO of its U.S. wealth management business. While CI has had apparent success at completing deals, investors have not been on board with the strategy. The firm’s deal pace is slowing, and the focus has shifted to deleveraging and attempting to unlock the value of the U.S. wealth management business built through the planned spinoff.

November 11, 2022 Industry Trends

Rough Quarter in a Rough Year

Q3 RIA Performance Was Mostly Bad, But in Lots of Different Ways

Most of the 9/30 quarterly results are in, and public RIA performance was all over the map.  Mostly, it was a rough quarter in a rough year.  Sagging AUM led to revenue cuts which dropped straight to the bottom line.  Some firms mitigated their downside by cutting bonus compensation and marking down earnout payments for acquisitions.  We did a survey of a cross-section of asset and wealth management firms.  Ultimately, it appears some business models are working better than others.

September 21, 2022 Industry Trends Wealth Management

Market Indications of RIA Value are Mixed, To Say the Least

Unicorn or Glue Horse?

The differential in interest in public investment management businesses and private investment management businesses isn’t sustainable. Will higher interest rates eventually wear down leveraged acquirers, as they have in other growth-and-income sectors? Will PE investors start to question the merits of trading companies from fund to fund instead of testing valuations in the open market? Will the public RIA group follow Pzena’s lead and go private? Or will public investors’ newfound interest in dividend stocks lead them to RIAs? It’s tough to forecast a public RIA resurgence but never say never.

August 19, 2022 Transactions

Five Takeaways for RIAs From Focus Financial’s Earnings Release

As one of the more active acquirors in the investment management industry, Focus Financial Partners (Focus) has a broad perspective into the state of the RIA industry and M&A activity.  In this week’s blog we summarize five key takeaways for RIAs based on Focus’ recent Q2 earnings release.

July 29, 2022 Asset Management Industry Trends Practice Management

Schwab’s 2022 Benchmarking Study Offers Insights Into the RIA Industry

How Does Your RIA Measure Up?

Schwab recently released its 2022 RIA Benchmarking Study.  The survey contains responses from over 1,200 RIAs representing $1.8 trillion in AUM to questions about firm operating performance, strategy, and practice management.  The survey is a great resource for RIA principals to see how their firm’s performance and direction measure up against the average firm.  In our blog post this week, we highlight some of the key results of the survey.

July 15, 2022 Industry Trends

Another Tumultuous Quarter for RIA Stocks Puts the Industry Firmly in Bear Market Territory

Publicly Traded Alt Managers and RIA Aggregators Have Lost Nearly Half Their Value Since Peaking Last November

The RIA sector continued its losing streak last quarter, underperforming all classes of the S&P, which also saw a decline. Because this industry is primarily invested in stocks and bonds, which have declined significantly over the past six months, the market is contributing to the issue. Asset and wealth managers continued underperformance is probably due to lower industry margins as AUM and revenue decline along with the market while labor costs continue to rise. In this week’s post, learn more about this and its effects.

March 18, 2022

What Market Volatility Means for Your RIA

Is Volatility the New Normal?

It’s de ja vu all over again.  The volatility from the onset of the pandemic two years ago has been creeping back up as investors grapple with the global implications of the war in Ukraine.  At the end of last year, most RIA owners were enjoying peak AUM and run-rate profitability.  Since then, these measures have likely taken a substantial hit as the S&P 500 and NASDAQ are down 12% and 19%, respectively.  When this happened two years ago, the market made a sharp recovery in the preceding quarters, but looking forward, we don’t know where the bottom lies.  Most RIA principals are likely grappling with a sizable decline in management fees and earnings for the next billing cycle.

With taking a look at the VIX Index, we have assessed that the market volatility is likely here to stay – at least for a while.  In this post, we explore what this volatility means for you and your RIA.