A weekly update on issues important to the Investment Management industry
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.
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.
Most of the sector’s recent press has focused on the SEC’s proposed advice rule. We’ve highlighted some of the more salient pieces on the proposed rule, as well as articles on a few other topics that have been making news in the industry.
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.
A rocky first quarter was particularly volatile for publicly traded RIAs. After reaching record highs in late January, most categories of publicly traded RIAs ended the quarter with negative returns.
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.
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.
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.
This whitepaper is a compilation of thoughts we have gathered in the early days of this new tax regime. We present what we think are the major issues that RIA partners should consider.
There is an argument to be made that the 2017 Tax Cut and Jobs Act is bullish for RIA M&A, but there is also a counter-argument. In this week’s post, we address both.
The Tax Cuts and Jobs Act (TCJA) introduces the Qualified Business Income (QBI) deduction as a partial offset to the bill’s reduction in the relative tax efficiency of pass through entities (S corporations, limited liability companies, and partnerships) versus C corporations. Still, many RIAs will not be eligible for the deduction, and those that do will have a lot to keep in mind as it pertains to reasonable compensation levels and investment income. We’ll try to sort it all out for you in this week’s post.
Most of the sector’s recent press has focused on the tax bill’s impact on RIAs, so in addition to our own writings on the matter, we’ve highlighted some of the more salient pieces we’ve come across regarding the tax bill as it relates to the asset management sector.
The Tax Cuts and Jobs Act has really shaken up the underlying economics of investment management firms and, with that, the value of those firms. As a consequence, many owners of RIAs have inaccurate ideas of what their firms are worth, and, worse than that, they have outmoded shareholder agreements suggesting the willingness to transact at inaccurate valuations.
The Tax Cuts and Jobs Act has been especially beneficial to the RIA sector, as lower corporate tax rates has had a positive impact on equity markets, boosting AUM and earnings, which are now taxed at lower rates. Many firms are still assessing the full impact of tax reform, but what is clear is that lower corporate tax rates in 2018 will give asset mangers increased flexibility in capital management, M&A activity, and technology investment. 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.
For this week’s post, we’re offering the slides and recording from our recent webinar on the tax bill’s impact on the investment management community. On balance, we believe most RIAs are better off as a consequence of the legislation, but there are nuances to the “win.”
We covered much of what we think the new tax bill will mean to RIA valuations in last week’s blogpost – and it’s mostly good news. The “rest of the story” involves the bill’s impact on shareholder returns for RIAs structured as tax pass-thru entities (S corporations, LLCs, Partnerships), for which the news is not so buoyant.
The tax bill is bullish for the RIA community. Focused on the implications of the tax bill for investment management firm valuations, there’s much to consider as discussed in this week’s post.
All three publicly traded trust banks (BNY Mellon, State Street, and Northern Trust) underperformed other categories of asset managers during 2017, and only State Street outperformed the S&P 500. While all three benefited from growth in Assets Under Custody and Administration (AUCA) and Assets Under Management (AUM) due to strong equity markets in 2017, the trust banks performed more in line with U.S. banks generally during 2017.
With no end in sight for the consolidation pressures facing the industry, asset manager M&A appears positioned for continued strength or potential acceleration regardless of which way the markets move in 2018, although a protracted bear market, should it materialize, could highlight consolidation pressures and provide a catalyst for a larger wave of M&A activity.
Favorable market conditions over the last year have lifted RIA market caps to all-time highs yet again as AUM balances continue to climb with the major indices. Is the press wrong about some of the problems facing the industry or is there more to the story?
While we put off writing about bitcoin, the attention that cryptocurrencies received in late 2017 got our attention as a barometer for trends that will buffet the investment management industry in 2018. In this post, we highlight five reasons bitcoin matters to all investment managers.
Our colleagues down the hall who focus on the portfolio valuation side of our services to the asset management community have an extensive new study on the Financial Accounting Standards Board’s guidance for recognizing the fair value of corporate venture capital, or Accounting Standards Update 2016-01.
In this final blogpost on evaluating unsolicited offers for your RIA, we take on this issue of valuing an offer. Valuing the offer for your RIA can be more difficult than valuing the firm itself.
As noted last week, much has been written about some of the major wirehouse firms abandoning protocol these last few months. This week we explore what the implications are for RIAs and how it could impact their value in the marketplace.
