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RIA Valuation Insights

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January 14, 2019 Trust Companies

Trust Banks’ Performance and the Role of Technology

Trust banks have generally lagged the broader indices since the financial crisis of 2008 and 2009. Against a bearish backdrop for the industry, all three trust bank stocks declined in the last few months of the year with falling client asset balances and rising labor costs. Northern Trust and BNY Mellon performed more in line with the market and traditional banks while State Street’s underperformance is largely attributable to investor skepticism surrounding its purchase of Charles River Systems last summer.

January 7, 2019 Industry Trends

RIA Stocks Suffer Worst Quarter Since the Financial Crisis

Most Traditional and Alternative Asset Managers in Bear Market Territory After Turbulent Year for Global Equities

Following a decade of (fairly) steady appreciation, RIA stocks finally capitulated with the market downturn and growing concerns over fee compression and asset flows.  As a leading indicator, such a decline suggests the outlook for these businesses has likely soured over the last year or so.

January 2, 2019 Industry Trends

RIA Valuation Insights: Best of 2018

Happy New Year to all our readers and subscribers!  Here are the five most popular posts from 2018.

December 17, 2018 Industry Trends

‘Twas the Blog Before Christmas…

Mercer Capital RIA Holiday Quiz

As year-end approaches, we hope to spread some cheer with the greatest only asset management themed holiday quiz. Merry Christmas! We will be back in January.

December 10, 2018 Current Events 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 Current Events

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 26, 2018 Wealth Management

How Generational Differences Should Define Advisors’ Interactions with Clients

A Review of The Gen-Savvy Financial Advisor by Cam Marston

Generational differences were prominent as I spent time with my grandparents, parents, and cousins over the Thanksgiving Holiday.  But why and how should Financial Advisors take note of these differences as they market and structure their services to meet the needs of different age groups?

November 19, 2018 Current Events

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.

November 12, 2018 Practice Management

What is Your Firm’s “Brand” Worth?

Building the Value of an RIA Involves Making it More Than a Group of Professionals

The announcement from Merrill Lynch last week that they were cutting advisor compensation stood in stark contrast to a lawsuit filed in October by former Wells Fargo brokers, alleging that their practices had been impaired by association with the bank. While Merrill feels comfortable flexing their brand muscles by redirecting advisor cash flow back to the firm, Wells Fargo is accused of actually having negative brand value. These two situations highlight the dynamic interaction between investment management professionals and the firms they work for while demonstrating the significance of branding to build professional careers and advisory firm value.

November 6, 2018 Industry Trends

What We’re Reading on the RIA Industry

Much of the sector’s recent press has focused on succession planning and M&A trends, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the asset and wealth management industries.

October 29, 2018 Industry Trends

2018 BNY Mellon/Pershing RIA Symposium Recap

Earlier this month, Matt Crow and I attended the BNY Mellon / Pershing RIA Symposium in San Francisco. The conference was well attended, and the presentations were excellent despite the constant drone of fair wage protesting outside the hotel venue. For this post, we’ve elected to summarize some of these presentations and their potential implications for your business.

October 22, 2018 Industry Trends Transactions

Asset Manager M&A Trends

Deal Activity Continues to Accelerate Through the Third Quarter 2018

Asset manager M&A was robust through the first three quarters of 2018 against a backdrop of volatile market conditions.  Several trends which have driven the uptick in sector M&A in recent years have continued into 2018, including increasing activity by RIA aggregators and rising cost pressures.  Total deal count during the first three quarters of 2018 increased 45% versus the same period in 2017 and total disclosed deal value was up over 150%.  In terms of both deal volume and deal count, M&A is on pace to reach the highest levels since 2009. 

October 15, 2018 Alternative Asset Managers

Alternative Asset Managers

Segment Focus

Alternative investment managers took off in the wake of the financial crisis when investors flocked to risk mitigating strategies and uncorrelated asset classes; however, during 2015 and 2016 these businesses floundered against a backdrop of strong equity market performance.  Alt managers bounced back in 2017, and over the last twelve months, have continued to perform well.  Despite improving performance over the last two years, the industry continues to face a number of headwinds, including fee pressure, expanding index opportunities, and relative underperformance.

October 8, 2018 Industry Trends

RIA Stocks Post Mixed Performance During 3Q18

During the recent market cycle, asset managers have benefited from global increases in financial wealth driven by a bull market in most asset prices. These favorable trends in asset prices have masked some of the headwinds the industry faces, including growing consumer skepticism of higher-fee products and regulatory overhang.

October 2, 2018 Practice Management

It’s Not Just Elon: Founder’s Syndrome Depresses the Value of RIAs as Well

Like all founder-led companies, RIAs can benefit from the entrepreneurial zeal of the men and women who started them.  Unfortunately, that same appetite for risk-taking can lead to reckless behavior, and the identification of a founder with a namesake enterprise can complicate succession planning.  In any event, the risk associated with a founder-led RIA can lead to extreme results: taking advantage of a moon-shot opportunity, or a business that’s lost in space.

September 24, 2018 Practice Management Transactions

The Role of Earn-outs in Asset Management M&A

Despite the relatively high level of financial sophistication among RIA buyers and sellers, and broad knowledge that substantial portions of value transacted depends on rewarding post-closing performance, contingent consideration remains a mystery to many industry M&A participants. Yet understanding earn-outs and the role they play in RIA deals is fundamental to understanding the value of these businesses, as well as how to represent oneself as a buyer or seller in a transaction. We offer this whitepaper to explore the basic economics of contingent consideration and the role it plays in negotiating RIA transactions.

September 17, 2018 Margins and Compensation Practice Management

Staffing for Value

With last week’s release of the 2018 InvestmentNews Compensation & Staffing Study, trends in pay and performance expectations are making the rounds in the RIA community.  Even though we are a valuation firm, we are often asked to weigh in on compensation matters, as officer pay and firm value are typically intertwined. 

September 10, 2018 Industry Trends

Will Direct Indexing Become the Next ETF?

Since their launch in 1993, exchange traded funds (ETFs) have steadily attracted assets from mutual funds and active managers that have struggled to compete on the basis of performance and overall tax efficiency.  Now many industry observers believe that the same may very well happen to ETFs with the recent rise of direct index investing (DII).  For this week’s post, we look into the pros and cons of DII and the implications for the investment management industry.

September 5, 2018 Current Events

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 27, 2018 Practice Management

Why Scale Doesn’t Always Resolve Succession Issues

Recent challenges at Och-Ziff and Hightower highlight the struggles RIAs face in transitioning the business to the next generation of management.  Size doesn’t alleviate this problem and may actually exacerbate it for some asset managers.  In this week’s post, we explore what went wrong in these instances and what you can do to avoid a similar fate.do to avoid a similar fate.

August 20, 2018 Current Events

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.

August 13, 2018 Asset Management Industry Trends Wealth Management

The Haves and Have-Nots of the RIA Industry

Despite the old maxim of a rising tide lifting all boats, the current markets are clearly more buoyant for wealth management firms than asset management firms.  Many asset managers are trading at or near all-time lows from a valuation perspective, while financial advisory shops continue to accumulate client assets.  For this week’s post, we’ll take a closer look at this trend, and what it means for the broader industry.

August 6, 2018 Transactions Wealth Management

Does the Money Management Industry Need Consolidation?

The investment management industry is characterized by scores of independent firms who have found success in idiosyncrasy, providing clients a limitless variety of paths and approaches to common investment dilemmas.  Some would suggest that this is the source of the industry’s strength, but not everyone agrees, as evidenced by the Focus Financial IPO two weeks ago.

July 30, 2018 Current Events 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.