Category

RIA Valuation Insights

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March 25, 2019 Wealth Management

Whitepaper Release: How to Value a Wealth Management Firm

Investment management is a younger profession than many, but it too has evolved and is evolving, into an industry of sub-specialties of manufacturing (asset management) and distribution (wealth management).  Wealth management is in a dynamic period, with changing client service models, challenges to profitability, the augmentation and distraction of technology, consolidation in some ways and fragmentation in others.

Recognizing this, we thought it would be useful to put together a whitepaper on valuation issues that are unique to the wealth management industry.  While there are certainly characteristics of wealth management firms that are common to all RIAs, there are enough distinctions to caution anyone from painting the profession with too broad a brush.

March 18, 2019 Wealth Management

What Wealth Managers Need to Know About the Market Approach

The market approach is a general way of determining the value of a business which utilizes observed market multiples applied to the subject company’s performance metrics to determine an indication of value.  The “market” in market approach can refer to either public or private markets, and in some cases the market for the subject company’s own stock if there have been prior arms’ length transactions.  The idea behind the market approach is simple: similar assets should trade at similar multiples (the caveat being that determining what is similar is often not so simple).  The market approach is often informative when determining the value of a wealth management firm.

March 12, 2019 Wealth Management

What Wealth Managers Need to Know About the Income Approach

There are three general approaches to determining the value of a business: the asset-based approach, the income approach, and the market approach.  The three approaches refer to different bases upon which value may be measured, each of which may be relevant to determining the final value.  Ultimately, the concluded valuation will reflect consideration of one or more of these approaches (and perhaps several underlying methods) based on those most indicative of value for the subject interest. This week, we take a look at how the income approach is used to value wealth management firms.

March 4, 2019 Wealth Management

The Anatomy of a Wealth Management Firm

A Closer Look at a Business that Continues to Pivot with Client Needs

Wealth management firms have significantly evolved over the last several decades for various reasons. For purposes of this post, we provide a bit of history on the industry, basic characteristics of today’s wealth management firm, and take a look at recent performance.

February 25, 2019 Current Events

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 18, 2019 Asset Management Industry Trends Wealth Management

What We’re Reading on the RIA Industry

Q1 2019

Much of the sector’s recent press has focused on the current market 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.

February 11, 2019 Current Events

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 Current Events

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.

January 29, 2019 Practice Management

Five Questions to Ask Your P&L

A Great Start to 2019 is a Thorough Lookback at 2018

Now that January is almost over, we know that many of you have wrapped up quarterly investor communications and can now take a moment to think about your firm’s operations, direction, and other practice management issues. A useful place to begin your plan for 2019 is doing some fundamental research on your own business, starting with the P&L.

January 21, 2019 Transactions

2018 Was a Banner Year for Asset Manager M&A

Asset manager M&A was robust throughout 2018 against a backdrop of volatile market conditions.  Several trends which have driven the uptick in sector M&A in recent years continued into 2018, including increasing activity by RIA aggregators and rising cost pressures.  Total deal count during 2018 increased 49% versus 2017 and total disclosed deal value was up nearly 140% to $18.0 billion.  In terms of both deal volume and deal count, asset manager M&A reached the highest levels since 2009.

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.