A weekly update on issues important to the Investment Management industry
The value of RIAs and the future of transactions in the industry ultimately comes down to the health of the individual firms. Fortunately, there is a relatively straightforward way to assess the financial well-being of your firm, and ways of taking corrective action if your firm’s future is threatened.
This is our first blogpost in three weeks. As the Coronavirus pandemic set in across the United States, Mercer Capital adjusted to working remotely about as smoothly as I could have hoped. The RIA team here at Mercer Capital struggled to find appropriate topics to cover in our weekly blog. Regular “business as usual” topics seemed out of place, and writing about very current events, like the massive dislocations in the structure of markets, isn’t why our readers spend their precious minutes absorbing our blog. For a couple of weeks, it seemed better to say nothing than to say the wrong thing. Fortunately, Mindy Diamond of the financial advisory recruiting firm, Diamond Consulting, asked if I would help her with a podcast about the impact of the pandemic on RIA valuations and, consequently, on transaction activity.
If you don’t subscribe to the Diamond podcast, Mindy hosts the all-stars of the RIA universe like Shirl Penney, David Canter, Mark Tibergien, and Liz Nesvold. Mindy also throws in a few mere mortals such as myself for variety – and digs until she gets well past the talking points. I hope you enjoy listening to this as much as I enjoyed the interview.
It’s hard to imagine, but the most significant piece of news for the RIA community so far this year happened less than three weeks ago and is already almost forgotten: Peter Mallouk sold a minority stake in his firm, Creative Planning, to private equity firm General Atlantic. The transaction is easily one of the largest, if not the largest, minority transaction in the history of the RIA industry, and potentially provides a blueprint for others to follow.
In this post we take a look at some of the earnings commentary from Q1 2020 call reports.
It’s hard to see the advent of SchwabiTrade as a good thing for the RIA community – especially the wealth management community. If Schwab is looking to recapture margins from zero commission trading and low rates on sweep accounts, it need look no further than the ten thousand plus RIAs now in its eco-system.
During Q3 2019, most classes of RIA stocks underperformed major equity markets, which are having their best year, so far at least, in more than two decades. In general, base fees for RIAs were up due to higher average AUM (driven by market growth), however, each sector experienced unique challenges. As we do every quarter, we take a look at some of the earnings commentary from investment management pacesetters to scope out the dominate trends.
We were intrigued (and skeptical) of the recent reports that RIA aggregator Mercer Advisors was looking to fetch a $700 million-plus price tag in a prospective sale by its PE backers at Genstar Capital. A 15-16x multiple on an estimated pro-forma, run-rate EBITDA of approximately $50 million results in a $750 million to $800 million enterprise value for the business, which certainly got our attention. Still, this figure could be meaningless if it’s an unlikely appraisal of Mercer Advisor’s current market value. For this week’s post, we’ll address our opinion from a fair market value and strategic value perspective.
It’s been a year since the Focus Financial IPO generated a similar level of conversation in the RIA community – and the transaction dominos have been falling ever since. In that same year, Victory Capital pulled off a major acquisition, Affiliated Managers Group got back into the acquisition game following a two-year hiatus, United Capital was acquired by Goldman Sachs, and Mercer Advisors is soliciting bids.
I was thinking about all of this on a road trip across the southeast last week, in-between blasting Tom Petty on satellite radio and dropping in on a few clients. At one of my first stops, a client asked if I saw a lot of M&A activity in the RIA space. Yes, I replied, but I see even more headlines about it. Plenty has changed in the RIA community in the last twelve months, but even more has not.
On June 10th, Fidelity Clearing & Custody Solutions and Merchant Investment Management announced a new partnership to increase wealth managers’ access to capital for acquisitions and growth initiates. The deal opens up a sizable new sales channel for Merchant, and in return, Fidelity’s behemoth platform tacks on a few additional selling points to entice M&A-minded RIAs.
If there is one consistent story in these RIA rollups, it’s that building them takes longer than anybody expects. Duran worked on building United Capital for nearly 15 years. Some things require scale that cannot be acquired in one lifetime, however, and that’s where the CEO of Goldman Sachs, David Solomon, saw an opportunity.
During Q1 2019, most classes of RIA stocks underperformed the market despite its relatively sharp increase through the first three months. Investors still seemed concerned about the RIA industry’s prospects in the face of fee compression and continued asset outflows. RIAs are responding to this pressure in different ways. Some are actively expanding product offerings to meet clients’ changing demands; others are staying true to the traditional RIA model and responding to revenue pressure by developing cost efficiencies. As we do every quarter, we take a look at some of the earnings commentary of investment management pacesetters to gain further insight into the challenges and opportunities developing in the industry.
In a world where non-stop financial commentary is as commonplace as it is tedious, one man’s market insights get an unusual amount of attention: Warren Buffett’s annual shareholder letter. Buffett is an ironic icon of the investment management industry. He’s made his fortune from active investment management, but regularly articulates his skepticism of the same. He’s doubtlessly inspired more people to found RIAs than any other individual, yet his firm, Berkshire Hathaway, is not an RIA. And his annual treatise on the performance of his company is full of common-sense wisdom that, based on Berkshire’s track record, is anything but common.
As we do every quarter, we take a look at some of the earnings commentary of pacesetters in investment management to gain further insight into the challenges and opportunities developing in the industry.
This week we say goodbye to perhaps the greatest advocate of passive investing. John Bogle’s contributions to indexing strategies and ETF investing have had huge impacts on both active and passive management, which we’ll address in this week’s post.
Last week was turbulent for equities around the globe, but Focus Financial (Nasdaq: FOCS) was hit particularly hard. Less than five months since IPO, Focus closed Friday at $27.45, decidedly below where the offering priced at $33, and not much more than half the share price achieved less than three months ago.
The recent controversy surrounding Ric Edelman’s cease-and-desist letter to his former partner, David Bach, is another reminder of how difficult it can be to sustain wealth management partnerships despite their (sometimes) obvious advantages. This week’s post will explore the sources of these disputes and what you can do to avoid them.
While equity market volatility was relatively subdued during the third quarter, 2018 as a whole has seen much higher volatility than last year. This volatility may be an opportunity for active asset managers, although the industry continues to face fee pressures and increasing costs. Scale is increasingly important for asset managers as assets flow into lower fee products due to secular trends in the industry and de-risking during recent periods of heightened volatility.
As we do every quarter, we take a look at some of the earnings commentary of pacesetters in asset management to gain further insight into the challenges and opportunities developing in the industry.
After watching the price of trading drop for decades, it wasn’t so surprising when J.P. Morgan announced that it would offer free online trading for certain investors last month, but when $2.5 trillion manager Fidelity Investments announced they were going to be offering two “free” index funds, the industry rocked on its heels. Is this the next leg down for pricing of investment management, a publicity stunt by Fidelity, or something else altogether?
As we do every quarter, we take a look at some of the earnings commentary of pacesetters in asset management to gain further insight into the challenges and opportunities developing in the industry.
Now that Focus is public, we have a new channel with which to study and benchmark the industry. We have lots of questions, but for this post we’ll just look at the implications of the Focus valuation that is consequent from the IPO.
Most of the sector’s recent press has focused on M&A trends and the SEC’s proposed advice rule, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the industry.
Last week we offered up some observations on Focus Financial’s S-1, and as we continue to study the filings, it occurred to me that they say as much about the current state of the RIA industry as to they do about Focus itself.
Money, being what it is, never sleeps. It also never goes on vacation. I was, however, about to spend ten days away from the office with my older daughter in Scotland and England when Focus Financial (finally) filed for a public offering. One of the most anticipated events in the wealth management industry, the pendency of the Focus IPO didn’t cancel my trip, but I knew that my vacation was going to be at least punctuated by reading the S-1 along with my peers’ commentaries. I’ve now read the 275-page document a few times, and while it’s not your typical beach novel, the Focus prospectus is required summer reading for anyone in the RIA community.
Recent judicial decisions have all but nullified the DOL’s proposed regulation, and the SEC’s Advice Rule appears poised to be the likely successor. This post explores the recent turns in this ongoing saga and what it might mean for your firm.
