RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

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RIA Valuation Insights


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.

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?

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.

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.

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.

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.

Wealth Management

Wealth Management Industry: Opportunities Abound Despite Headwinds

Wealth management firms have fared well in recent years on the back of rising markets, but the underlying drivers suggest an industry in flux; global investible assets are at all time highs, intergenerational wealth transfer is accelerating, and FinTech products are poised to disrupt.  Yet, many analysts are skeptical about the industry’s prospects.  Rising global wealth means that there are more assets for wealth managers to manage, and intergenerational wealth transfer means that there are also more opportunities to gain (and lose) clients.  FinTech products threaten competition, but also offer efficiencies for agile firms.  Depending on your point of view, the industry is either poised to grow or on the verge of massive disruption.

Industry Trends

RIA Stocks Post Mixed Performance During 2Q18

Over the last several years, asset managers have benefited from global increases in financial wealth driven by a bull market in asset prices.  However, favorable trends in asset prices have masked some of the headwinds the industry faces. Against this backdrop, we take a closer look at last quarter’s market performance through the lens of sector and size.

Practice Management

Thinking About Going Exclusive?

Five Considerations for RIA/BD Hybrids Looking to Drop Their BD Status

With the Advisor Rule looming and commissions dwindling, it may be time for some RIA/BD hybrids to take it to the next level: drop the broker-dealer license and register exclusively with the SEC as an investment advisor.  This week’s post focuses on what’s driving the downward trend in BD-only registrants and when it makes sense to abandon the hybrid model.

Practice Management

Five Things RIA Owners Can Do to Turn Success into Momentum

While the fundamentals of your firm may appear to deteriorate during bear markets, the fundamentals of the industry will continue to drive success for a long time. Today, the fundamentals of your firm are probably the best they’ve ever been. That’s why this is the perfect time to consider your formula for success, prepare for the next downturn, and build the competitive momentum you’ll need to ride the industry trends to greater success in the future.

Current Events

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.

Current Events

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.

Current Events

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.

Industry Trends

What’s the Latest on Broker Protocol?

It’s been several months since Morgan Stanley and UBS departed from the Protocol for Broker Recruiting, and the industry is continuing to feel the ripple effects of their maneuver.  Much remains to be seen, but many analysts expect more firms to abandon the protocol despite Wells Fargo’s and Merrill Lynch’s recent announcements to stick with it for now. 

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.

Industry Trends Transactions

Asset Manager M&A Activity Accelerates in 2018

Asset manager M&A was robust through the first quarter of 2018 against a backdrop of volatile market conditions.  Several trends which have driven the uptick in sector M&A have continued into 2018, including revenue and cost pressures and an increasing interest from bank acquirers. We discuss further in this week’s post.

Industry Trends

Volatile First Quarter Brings Asset Management Industry Headwinds Back Into Focus

Publicly traded asset managers had a rough first quarter, as volatility returned to the market and major indices posted negative quarterly returns for the first time in over two years.  While the overall drop in the market was relatively modest, stock price declines of publicly traded asset managers were generally more significant. It is not surprising that most asset managers have underperformed during periods of declining markets, since the reverse was true during 2017, when most asset managers outperformed the major indices.

Industry Trends

Three Takeaways from the CFA Institute’s Wealth Management Conference in Los Angeles

Several topics were discussed at the CFA Institute’s Wealth Management Conference, most of which centered around financial planning, practice management, and servicing private clients with evolving needs and return requirements.  Though we weren’t able to attend all the sessions, we did pick up on a few themes from our discussions with the attendees and other exhibitors. In this week’s post, we further discuss those themes.

Investment Management

Mercer Capital provides RIAs, trust companies, and investment consultants with corporate valuation, litigation support, transaction advisory, and related services