A weekly update on issues important to the Investment Management industry
Last quarter we blogged about how great 2019 was for the RIA industry. Recent events have rendered that blog post largely irrelevant, as discussions in the industry are now centered on how the COVID-19 global pandemic has impaired RIA valuations. This post summarizes the effect it has likely had on RIA valuations.
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.
Independent trust companies are a growing segment of the trust industry. While trust divisions of banks still represent about 84% of the trust industry, there’s been a trend towards independence that parallels that seen in the wealth management industry. In this post, we highlight some of the trends impacting independent trust companies.
As trusts have become more sophisticated, independent trust companies have become increasingly specialized with respect to trust administration. Many independent trust companies today focus on specialized types of trusts or beneficiaries. As part of this trend, trust companies are increasingly outsourcing investment management in order to focus on fiduciary issues.
This week’s post explores the motivations and implications of February’s record month for RIA Dealmaking.
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.
Relying on comparable public company data in the valuation of your RIA can be tricky and the performance of the publics over the past 12 months bears that out. We don’t typically see a 40%+ increase in value (TROW) and a ~25% decline in a bull market (AMG) for two businesses in the same industry. So, it’s important to understand the impact of market forces but it’s more important to understand the unique nature of your business and what is in your control and what isn’t. This week’s post takes a deeper dive into this topic.
Fidelity recently published a study on M&A activity in the wealth management industry highlighting sellers’ ambitious expectations of the value of their firms Fidelity’s conclusion: sellers of investment management firms often “don’t entirely understand what drives valuation.” In this post we hope to provide insight to the owners of wealth management firms on how likely buyers value their firm.
Investment management is a great business. Firms that don’t need to sell, don’t sell. If transaction activity is up, does this mean that more firms need to sell? If pricing and deal terms are better, are the transactions available today really that much more attractive than those available a few years ago? And is the culture of consolidation that has emerged in the RIA community sustainable?
Asset and wealth manager M&A continued at a rapid pace during the fourth quarter of 2019, rounding out a record year by many metrics. Total deal count in 2019 rose 6% over 2018, reaching the highest level seen over the last decade. While reported deal volume declined by 50% in 2019, this metric can be a less reliable indicator of transaction activity given the lack of disclosed deal terms and the influence of large transactions. In 2020, we expect several trends to continue as many of the forces that shaped the industry over the last decade remain in place.
As we enter the new decade, rather than taking time for self-reflection, we prefer to take a step back and reflect on the radical transformation of the wealth management industry over the last ten years. Wealth managers have been forced to adapt in order to maintain their client base and remain profitable, and while these changes have not been easy, they have transformed the industry into one that is more focused on its clients’ needs and better regulated to ensure the safety of its clients’ assets.
As good as the fourth quarter was for the S&P, it was even better for the RIA industry. All classes of investment management firms bested the market, which was up 10% for the quarter. Continued gains in the equity markets have allowed these firms to more than recover from last year’s correction, and many of these businesses are now trading at or near all-time highs.
As year-end approaches, we hope to spread some cheer with our second annual RIA holiday quiz. Merry Christmas!
We’ve hesitated to put together a whitepaper on succession planning because so many people have already written excellent commentary on the topic. Nonetheless, when we surveyed what had been written about succession for RIAs, we didn’t see the kind of … Continued
As noted in a recent post, there are many viable options for RIA principals when it comes to succession planning. One way to transition ownership while maintaining independence is to sell internally to key staff members. The most obvious roadblock when planning for internal succession is pricing. But once you establish a price, how does the next generation pay? An internal transition of ownership typically requires debt and/or seller financing as it’s unlikely that the next generation is able or willing to purchase 100% ownership in a matter of months. In this post, we consider the expanding options for RIAs seeking debt financing and the typical terms they can expect.
Private equity pervades the RIA industry, but most of their recent interest is through consolidators or roll-up firms. In this week’s post, we’ll discuss the implications of this trend and other considerations for RIA owners’ contemplating the PE route.
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.
RIA M&A has been a well-publicized topic in the industry. There was a record level of RIA M&A in 2018, and so far in 2019 there are no signs that deal pace is slowing down. Against this backdrop, a new study conducted by Advisor Growth Strategies (AGS) and sponsored by BlackRock provides some insight into the state of deal terms in the RIA M&A market from the perspective of both buyers and sellers. We’ve highlighted some of the key takeaways from the study in this week’s post.
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.
Through the first three quarters of 2019, asset and wealth manager M&A has kept up with 2018, the busiest year for sector M&A during the last decade. Transaction activity is poised to continue at a rapid pace as business fundamentals and consolidation pressures continue to drive deal activity. Several trends which have driven the uptick in sector M&A in recent years have continued into 2019, including increasing activity by RIA aggregators and mounting cost pressures.
Earlier this month we had the pleasure of participating in a panel discussion on the value of wealth management firms in a transaction setting for the CFA Society of New York. In conversation after the event, one of the audience members asked me what I thought was the most successful business model to follow in the wealth management space. It’s a question we hear fairly often, and I try to avoid punting on the answer and saying “it depends.” In reality, though, it does depend.
The asset and wealth management industry is facing numerous headwinds, chief among them being ongoing pressure for lower fees. Traditional asset and wealth managers feel this pressure acutely, which has likely contributed to their relative underperformance over the last quarter. Alt managers, which have been the sector’s sole bright spot during this time, are more insulated from fee pressure due to the lack of passive alternatives to drive fees down. These headwinds have contributed to a decline in EBITDA multiples for traditional asset/wealth managers, which in turn has resulted in lackluster stock price performance.
