Category

Current Events

---

August 6, 2019

Is 16x Pro Forma EBITDA a Realistic Valuation for Mercer Advisors?

Pre-season Soccer and the Mercer Price Tag are Likely More About Form Than Substance

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.

July 29, 2019 Transactions

One Year Later: The Focus IPO Reshaped the RIA Industry

Attention Drives Activity

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.

June 24, 2019 Wealth Management

Fidelity’s Latest Move to Stay on Top of RIA Trends

Fidelity’s Partnership with Merchant Investment Management

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. 

May 24, 2019

Will Goldman Sachs Pay 18x EBITDA for Your RIA?

No. But Goldman’s United Capital Buy Suggests the Consolidation Winds are Shifting

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.

May 13, 2019

Q1 2019 Call Reports

RIAs Respond to the Changing Industry Landscape with Varied Measures

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.

February 25, 2019

Warren Buffett and the Intrinsic Value of Investment Management

A Few Reflections on the 2019 Berkshire Hathaway Shareholder Letter

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.

February 11, 2019

Q4 2018 Call Reports

Volatility Drives Investors to Low-Fee Passive Strategies

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.

February 4, 2019 Asset Management

RIP to the Father of Index Investing

John Bogle’s Legacy Endures with the Prominence of Passive Investing

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.

December 10, 2018 Wealth Management

Is Focus Financial an All-Terrain Investment Vehicle?

Management Claims Their Model is Recession Proof; Unfortunately, it isn’t Analyst Proof.

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.

December 3, 2018

Edelman/Bach Rift Highlights Challenges to RIA Partnerships

Partner-Level Conflicts at Firms of All Sizes Continue to Fragment the Industry

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.

November 19, 2018

Q3 2018 Call Reports

Coping with Rising Volatility and Fee Pressure

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.

September 5, 2018

Fidelity Wins the Race to the Bottom

Is Free the New Cheap?

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?

August 20, 2018

2Q18 Call Reports

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.

July 30, 2018 Wealth Management

Now That Focus Has Priced – Is It Pricey?

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.

July 2, 2018

What We’re Reading About RIA M&A and the SEC Advice Rule

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.

June 11, 2018

What Focus Financial’s IPO Filings Tell Us About the RIA 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.

June 4, 2018

Summer Reading for the RIA Community

Focus Financial’s IPO Filings

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.

May 29, 2018

Out with the Old and In with the New

Advice Rule Likely Successor to Recently Vacated Fiduciary Rule

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.

May 21, 2018

1Q18 Call Reports

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. This quarter the conversations center around market volatility, regulatory developments, and the potential cash flow into fixed income products.

May 4, 2018

What We’re Reading about the SEC Advice Rule, Fiduciary Rule, and Broker Protocol

Most of the sector’s recent press has focused on the SEC’s proposed advice rule. We’ve highlighted some of the more salient pieces on the proposed rule, as well as articles on a few other topics that have been making news in the industry.

March 26, 2018

The Impact of the 2017 Tax Cuts & Jobs Act on the Investment Management Industry

This whitepaper is a compilation of thoughts we have gathered in the early days of this new tax regime. We present what we think are the major issues that RIA partners should consider.

March 18, 2018 Transactions

Two Perspectives on RIA Transactions in the Wake of the Tax Bill

There is an argument to be made that the 2017 Tax Cut and Jobs Act is bullish for RIA M&A, but there is also a counter-argument. In this week’s post, we address both.

March 9, 2018

Your RIA May Qualify for the QBI Deduction, But Don’t Get Your Hopes Up

The Tax Cuts and Jobs Act (TCJA) introduces the Qualified Business Income (QBI) deduction as a partial offset to the bill’s reduction in the relative tax efficiency of pass through entities (S corporations, limited liability companies, and partnerships) versus C corporations.  Still, many RIAs will not be eligible for the deduction, and those that do will have a lot to keep in mind as it pertains to reasonable compensation levels and investment income.  We’ll try to sort it all out for you in this week’s post.

March 2, 2018 Industry Trends

What We’re Reading about the Tax Bill

Most of the sector’s recent press has focused on the tax bill’s impact on RIAs, so in addition to our own writings on the matter, we’ve highlighted some of the more salient pieces we’ve come across regarding the tax bill as it relates to the asset management sector.