Category

RIA Valuation Insights

---

October 15, 2019 Alternative Asset Managers

Alternative Asset Managers

Performance Update

In May of this year, assets in passively managed funds equaled assets actively managed for the first time in history.  As investors seek low-cost solutions, alternative managers are working to solidify their place in investors’ portfolios.  Despite the headwinds the asset management industry faces, most investors still value the diversification offered by alternative assets, particularly late in the economic cycle.  In this post, we take a closer look at how alternative asset managers are performing in light of the broader shift from active to passive management and increased fee pressure.

October 8, 2019 Practice Management

Transitioning Your Business to the Next Generation of Leadership

Successful Succession for RIAs

Continuing with our succession series, this week’s focus is on internal transitions.  If you’ve ever wondered why there aren’t more transactions in the RIA space, it’s largely because most of these businesses ultimately transition their ownership internally to younger partners at the firm.  These deals typically don’t get reported, so you probably don’t hear about most of them.  Still, it’s the most common type of transaction for investment management firms and probably something that’s crossed your mind if you’re approaching retirement.

October 2, 2019 Practice Management

Planning to Succeed

Succession is as often discussed as it is misunderstood.  While many practice management issues revolve around industry expectations, regulations, client expectations, and basic economics, succession involves all of those things plus personality, culture, and skill sets.  And while much has been written about succession in the RIA industry, we’ve seen plenty of topics get little, if any attention.  This post is dedicated to some of the latter.

September 16, 2019 Practice Management

Selling Your RIA to a Consolidator  

Successful Succession for RIAs

As we explained in a recent post, there are many viable exit options for RIA principals when it comes to succession planning.  In this post, we will review some of the considerations when partnering with an RIA consolidator. 

September 9, 2019 Practice Management

Partnering with a Minority Financial Investor

Successful Succession for RIAs

As we explained in a recent post, there are many viable exit options for RIA principals when it comes to succession planning. In this post we will review some considerations of partnering with a minority financial investor to achieve a successful transition of ownership.

September 3, 2019 Practice Management

Posturing for a Successful Succession

A recent Schwab survey asked RIA principals to rank their firm’s top priorities in the coming year.  We were disappointed but not surprised to discover that developing a succession plan was dead last. If you’re a founding partner or selling principal, you have a lot of exit options, and it’s never too soon to start thinking about succession planning. We’ll outline these options in this post and expound upon them in more detail later in the series.

August 26, 2019 Transactions

Purchase Accounting Considerations for Banks Acquiring Asset Managers

As banks of all sizes seek new ways to differentiate themselves in a competitive market, we see many banks contemplating the acquisition of an existing asset management firm as a way to expand and diversify the range of services they can offer to clients. Transaction structures between banks and asset managers can be complicated, often including deal term nuances and clauses that have significant impact on fair value. Asset management firms are unique entities with value attributed to a number of different metrics (assets under management, management fee revenue, realized fee margin, etc.). It is important to understand how the characteristics of the asset management industry, in general, and those attributable to a specific firm, influence the values of the assets acquired in these transactions.

August 20, 2019 Practice Management

How Does Your RIA Measure Up?

Schwab’s 2019 Benchmarking Study Offers Insights Into the RIA Industry

Schwab recently released its 2019 RIA Benchmarking Study.  The survey contains responses from over 1,300 RIAs that custody their assets at Schwab 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.  We’ve highlighted some of the key results from the study in this week’s post.

August 12, 2019 Industry Trends Transactions

What We’re Reading on the RIA Industry

M&A Headlines

Recent press in the RIA industry has continued to highlight the current M&A environment. For this post, we’ll discuss some of the top acquisition headlines making news in the investment management industry.

August 6, 2019 Current Events

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 Current Events 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.

July 22, 2019 Asset Management Transactions

Q2 2019 Asset Manager M&A Trends

Asset and Wealth Manager M&A Keeping Pace with 2018’s Record Levels

Through the first half of 2019, asset and wealth manager M&A has kept pace with 2018, which was the busiest year for sector M&A over the last decade. M&A activity in the back half of 2019 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 rising cost pressures.

July 15, 2019 Practice Management Trust Companies

Are Trust Companies Changing for the Better?

Trust Company Sector Update

Trust law has evolved over time, most recently with modern trust laws in the 1980s and 90s established by certain states such as Delaware, Nevada, and South Dakota. Other states, such as Tennessee, have developed compelling trust statutes in more recent years. Just as trust law has changed with the regulatory environment, trust companies are changing to meet clients’ evolving needs.

July 9, 2019 Practice Management Transactions

Unsolicited Offers for Your RIA

Is the First Bid the Best?

The primary danger of an unsolicited offer is that it lures potential sellers into thinking the deal is done and the process will be easy.  As with most things in life, if something looks too good to be true, it usually is.

July 1, 2019 Industry Trends

Q2 2019 RIA Market Update

Asset Management Stocks Find Some Relief After Year-End Rout

Broad market indices generally increased over the last quarter, and publicly traded asset and wealth manager stocks followed suit.

Publicly traded traditional asset and wealth managers ended the quarter up 6.2%, beating out the S&P 500, which rose 2.6%.  Alt managers were the bright spot in the sector, up nearly 18%.  Aggregators and multi-boutique model firms did not fare well, despite all the hype about consolidation pressures in the industry and the high-profile deals in the aggregator space.  These businesses ended the quarter down more than 14%.

June 24, 2019 Current Events 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. 

June 17, 2019 Asset Management Industry Trends

Are Value Managers Undervalued?

Growth Investing Has Outperformed Value for Quite Some Time Now, and the Market’s Taking Notice

Significant underperformance relative to both the market and growth alternatives has led to continued outflows from institutional investors, which in turn has hampered AUM, revenue, and earnings growth despite relatively favorable market conditions. Since the multiple has also slid for these businesses, it appears that the market is anticipating more of the same. Against this backdrop, we address this post’s original question as to whether or not value managers are indeed undervalued at the moment.

June 10, 2019 Practice Management

The Ultimate Investment Vehicle

Is the Value of your RIA More a Function of Risk or Growth?

On paper, the RIA model is a value generating machine: a reliable stream of distributable cash flow resulting from sticky, recurring revenues and growing effortlessly with the investment returns available in a diversifiable variety of financial markets. The reality, of course, is more nuanced.

June 3, 2019 Industry Trends

Why Has the Public Market Soured on RIA Consolidators?

Recent Capitulations for AMG and Focus Suggest Investors are Starting to Question Their Business Model

While it’s no secret that the last year has been especially challenging for the RIA industry, Affiliated Managers Group (AMG) and Focus Financial (FOCS) have underperformed most of their peers by a fairly significant margin in the last few months.  AMG is down nearly 50% over the last year, and Focus has lost over 50% of its value since peaking last September. For this post, we’ll offer our take on the driving forces behind this decline.

May 24, 2019 Current Events

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 20, 2019 Industry Trends Practice Management Transactions

What We’re Reading on the RIA Industry

M&A and Practice Management

Much of the sector’s recent press has focused on the current M&A environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.  

May 13, 2019 Current Events

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.

May 7, 2019 Industry Trends Transactions

Ignoring the Obvious: What the Market isn’t Telling us About RIA Valuations

Over the weekend, the Financial Times published an article touting the rising level of merger and acquisition activity in the U.S. wealth management industry.  The piece echoed much of the typical commentary on the RIA industry’s prospects for deal activity: a large, profitable, but fragmented community of firms needing scale to develop the necessary technology infrastructure and serve sophisticated client needs.  The article talked to leaders in several PE-backed consolidators and some M&A specialists in the space, all of whom talked their book in general agreement that valuations were strong and consolidation was on.  What the article didn’t address is that while private equity has indeed been actively pursuing the investment management industry, the public markets seem to have lost interest.

April 29, 2019 Asset Management Industry Trends

RIAs Still Reeling from Last Year’s Sell-Off

Despite Recent Uptick, Investment Managers are Underperforming

Ordinarily, we’d expect investment manager stocks to outperform the S&P in a stock market rally.  This isn’t always the case though.  So far this year, most classes of RIA stocks have underperformed the market despite its relatively sharp increase through the first three months. The explanation isn’t necessarily obvious.