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Current Events

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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.  

March 11, 2022 Industry Trends

Hot Inflation and Cold Markets: RIAs Hit With a New Storm Front

February’s CPI growth came in at 7.9% year-over-year (the highest level in recent memory), and the ongoing Ukraine conflict portends further supply chain challenges that could drive prices even higher.  The front-end of the yield curve has shifted higher as market participants reason that rising inflation will force the Fed to raise rates sooner and by a greater magnitude than had been previously anticipated.

Historically, a flattening yield curve has signaled an end to a growth cycle, and so far in 2022 that certainly seems plausible.  Markets are down and valuation multiples have declined significantly, particularly in high-flying tech stocks. Read this week’s post to find out what this means for the RIA industry.

January 24, 2022 Industry Trends

A B2B Fintech in the RIA Space Races to Market

Dynasty IPO Ticks a Lot of Boxes, and Begs a Few Questions

Last week we were surprised by a rare sighting, an S-1 filed by a prominent player in the RIA community. Dynasty Financial Partners seeks to raise $100 million in a public offering. The mercifully terse prospectus is less than 250 pages, and is recommended reading for anyone who swims (or fishes) in this pond.

January 4, 2022 Asset Management Wealth Management

RIA M&A Q4 Transaction Update

Aggregators Continue to Drive Deal Volume in 2021

Deal count is projected to reach new highs in the fourth quarter of 2021 as market activity continues to gain momentum, likely rounding out another record-breaking year for the RIA industry. In keeping with the rest of 2021, deal volume was driven by secular trends and supportive capital markets. As market activity remains robust, competition for deals continues to favor RIA aggregators such as Mercer Advisors, Mariner Wealth Advisors, Wealth Enhancement Group, and Focus Financial Partners (FOCS), to name a few. In this week’s post, we provide more information about the aggregators and offer our thoughts for the future.

October 25, 2021 Wealth Management

RIA M&A Q3 Transaction Update

RIA M&A Activity Continues to Reach Record Highs

Despite the dip in the second quarter of 2021, RIA M&A activity continues to reach record highs putting the sector on track for its ninth consecutive year of record annual deal volume.

As we discussed last quarter, the same three demand drivers were persistent throughout the third quarter. While fee pressure in the asset management space and a lack of succession planning by many wealth managers continues to drive consolidation, looming proposals to increase the capital gains tax rate has accelerated some M&A activity in the short-term as sellers seek to realize gains at current rates.

Increased funding availability in the space has further propelled deal activity as acquisitions by consolidators and direct private equity investments increased significantly as a percentage of total deals during the recent quarter. What does this mean for your RIA firm? Read this post to find out.

October 11, 2021 Asset Management Industry Trends

“Permanent” Capital Providers Offer a Different Type of RIA Investor

Beginning With No End in Mind

The rise of “permanent capital” providers is both in response to and appropriate for the current environment of premium entrance multiples in the RIA space. While making a permanent capital investment doesn’t eliminate the depressive effects of current valuations on returns, it does help to mitigate them.

Absent self-imposed pressure to generate an exit within the foreseeable future, RIA investors can focus on opportunities for sustainable and growing distributions – the real value of investing in investment management.

August 30, 2021 Wealth Management

Growing Pains

Is the RIA Industry in Growth Mode or Shake-Out?

While the wealth management industry is not new, the amount of change, churn, and growth that has occurred in the industry over the past ten years make it easy to forget how far the RIA industry has come since the heyday of broker-dealers. Contextualizing the challenges facing the wealth management industry leaves one to wonder if many of these trends are no more than growing pains in the sector’s life cycle. And if so, what might such analysis suggest about the prospects for the fiduciary model?

August 4, 2021 Transactions

The Fundamental Value of RIAs? Scarcity.

If the Choice Is Buy vs. Build, "Build" Doesn’t Even Come Close

Are RIA transaction multiples getting out of hand? Contrary to the usual laws of supply and demand, each week it seems like we hear about another blockbuster deal rumored to have happened at an astronomical price, and correspondingly, we meet a new capital source we hadn’t known previously who is looking for way to implement an acquisition strategy in the RIA space. Is this FOMO on a grand scale, or just part of a grander moment in market dynamics?

July 21, 2021 Wealth Management

RIA M&A Q2 Market Update

Whispered Numbers Shout

RIA MIA activity slowed somewhat in the second quarter of Q2, but RIA markets are still on track to record the highest annual deal volume on record. As we discussed last quarter, fee pressure in the asset management space and a lack of succession planning by many wealth managers are still driving consolidation. But the increased availability of funding in the space, in tandem with more lenient financing terms, has also caused some of this uptick. But could some of this activity be attributable to the RIA rumor mill and the hype of double-digit multiples in the space?

May 4, 2021 Industry Trends

Multiple Expansion Drives 70%+ Returns for RIA Stocks Over Last Year

Over the last year, many publicly traded investment managers have seen their stock prices increase by 70% or more.  This increase is not surprising, given the broader market recovery and rising fee base of most firms.  With AUM for many firms at or near all time highs, trailing twelve month multiples have expanded significantly, reflecting the market’s expectation for higher profitability in the future.  For more insight into what’s driving the increase in stock prices, we’ve decomposed the increase to show the relative impact of the various factors driving returns between March 31, 2020 and March 31, 2021.

April 12, 2021 Transactions

Q1 2021 M&A Update

An RIA M&A Frenzy

Despite the hiatus in M&A beginning in March of last year with the onset of COVID-19, 2020 was a strong year for RIA mergers and acquisitions and 2021 is expected to be even stronger.

March 16, 2021 Industry Trends Practice Management

Common Valuation Misconceptions About Your RIA

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

As a financial analyst, a CFA charter holder, and a generally reasonable person, I know that Zillow isn’t accurate; but as a homeowner, I can’t help myself.  When I am walking around my neighborhood, I always have the Zillow App open, and am speculating about how the “Z-estimate” for my house compares to my neighbors’.  And, of course, my house always is better. Why? Because I own it.  It’s called the endowment effect.  I (as a homeowner) am emotionally biased to believe that something (my house) is valued higher than the market would ascribe, simply because I already own it.

And you, the owner of an RIA, may believe your firm is valued higher than the market value too, and old rules of thumb and recent industry headlines amplify the problem.

January 11, 2021 Transactions

Q4 2020 RIA Transaction Update

Deal Activity Rebounds After Brief Lull; Deal Terms and Multiples Remain Robust

After a brief lull during the second quarter of last year, RIA deal activity surged in the fourth quarter, rounding out a record year in terms of reported deal volume.  Concerns about the pandemic and market conditions were quickly shrugged off, as deal terms and the pace of deal activity returned to 2019 levels after the brief pause at the peak of the shutdown. 

December 8, 2020 Transactions

Did Macquarie Pay 11x EBITDA for Waddell & Reed? Yes and No

Catching a Falling (Butter) Knife

Last week, Macquarie Group announced its acquisition of Waddell & Reed (WDR) for $1.7 billion. At first glance, the pricetag implies an EBITDA multiple of over 11x and some are asking why Macquarie’s new CEO paid such a premium for a business whose AUM has halved over the last six years. Unfortunately, it’s not that simple. In this post, we dig into the deal economics and explain why paying a premium does not necessarily mean Macquarie over paid.

October 20, 2020

2020: Too Good To Be True?

Despite Harrowing Moments, the RIA Community Is Prospering

Now, after seven months of living with the pandemic, there is still no end in sight.  We might only be halfway!  But despite the barrage of challenges, the RIA community has embraced WFH, profited from buoyant markets, and resumed a relentless pace of M&A.  It has been, if very strangely, a very good year. Is this a sign of industry resilience?  Or an awful lot of luck? 

September 15, 2020

The Investment Management Sector Is Being Bombarded … With Money

What Do You Do When Liquidity Matters More Than Fundamentals?

After the initial punditry on whether or not the 2020 market crash/recession and recovery would be “L” shaped, “U” shaped, “V” shaped, or “W” shaped, it has become clear that the recovery is “K” shaped, with higher-skilled and higher paying jobs recovering rapidly, and many lower-skill, lower-paying jobs declining.  What does this mean for RIAs?  Most RIA clients are higher-income professionals who are paying more attention to their investment portfolios in this environment – not less.   Bullish for clients = bullish for the industry.

September 1, 2020

SEC Expands Accredited Investor Definition: What Does It Mean for RIAs?

Last Wednesday, the SEC announced an expansion to the definition of “accredited investor” to include individuals based on professional certifications and inside knowledge of issuers while keeping the old wealth and income thresholds the same. What does this mean for RIAs, their clients, and for capital markets?

August 24, 2020 Transactions

Gin, Business Valuation, and Ryan Reynolds

Earn-Outs in RIA M&A

Earn-outs are commonly used in RIA deals, and we expect contingent payments to make up an even larger percent of deal consideration for the next few months, quarters, or years depending on how long the current economic uncertainty lasts.  And while we hope most of our clients would be thrilled by the prospect of $335 million in upfront cash payments, we don’t want you to end up feeling as Ryan Reynolds did last week.  In this post, we explain what an earn-out is, why they are commonly used in RIA transactions, and how earn-outs may be used as a saving grace for deal activity in the current economic environment.

July 14, 2020

FULL Disclosure: The SBA Outs the Investment Management Industry’s Participation in the PPP

We spent some quality time with the SBA’s release of PPP borrower data to see what impact the program has had on the investment management industry. After scrubbing out some misclassified businesses, we found more than 2,400 program participants (RIAs, trust companies, financial planning firms, etc.) that borrowed at least $150,000 (a separate release covered smaller loans). Even though the borrower pool is relatively small (there are at least 10,000 RIAs that aren’t participating), the demographics of the pool are telling.

June 24, 2020

What Market Volatility Means for your RIA

Is Volatility the New Normal?

If one thing has become clear, it’s that market volatility is here to stay – at least for a while. In this post, we explore what this volatility means for you and for your RIA.