RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

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RIA Valuation Insights


Industry Trends

What’s Got Our Eye

Current RIA Trends

This week, we’re sharing some recent media on trends in the RIA space. We’ve blogged about asset flows, bank interest in the RIA space, the plight of active management, and the fiduciary rule, but these articles represent a deeper dive into each of these topics.

Current Events

2Q17 Call Reports

The More Things Change, the More They Stay the Same

As we do every quarter, we take a look at some of the earnings commentary on pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry.

Transactions

RIA Dealmaking

What’s the Hold-Up?

We’re always perplexed by the lack of transactions in the RIA industry. Sure, there are some out there, but a typical year reports less than a hundred deals in a space with almost 12,000 federally registered advisors. This means that less than 1% of industry participants transact in a given year. How could that be in an aging profession with a highly scalable business model? We offer a few explanations in this week’s post.

Industry Trends

A Rising Tide Lifts All Boats

All Classes of Asset Managers Up Over the Last Year

All classes of asset managers are off to a decent start in 2017 after a strong end to 2016 as the market weighs the impact of fee compression against rising equity prices.

Practice Management

Do Your Clients Give You an Unfair Advantage?

A question that we don’t hear enough RIAs asking themselves: what makes our best customer? The conventional wisdom we’ve gathered from talking with a wide variety of investment management firms over the years is that high net worth relationships make the best clients for RIAs. Relationships with individuals are supposed to be stickier than, say, institutional relationships where investment committees drop managers the moment their three-year performance lags the index. However, is it that simple?

Current Events

1Q Call Reports

As we do every quarter, we take a look at some of the earnings commentary of pacemakers in asset management to gain further insight into the challenges and opportunities developing in the industry.

Current Events Transactions

Focus Financial’s Quest for an Unfair Advantage

A Long Journey to an Uncertain Destination

As part of the analyst community that closely follows developments in the investment management industry, we were disappointed (but not surprised) that Focus Financial Partners pulled their S-1, again, and found a private equity recap partner instead of going public. Picking up on last week’s blog theme, Focus likes to tout their strategy of building an international network of efficiently connected wealth management firms as an “unfair advantage”, but it appears that their real capability is finding capital when necessary to avoid a public offering. Stone Point Capital and KKR bought 70% of the company, enabling prior private equity partners, affiliates who had sold their firms to Focus in exchange for stock, and employees with equity compensation to monetize their positions while Focus remains private.

Practice Management

Building Value in Your Investment Management Firm

The Unfair Advantage

After years of working with investment management firms of all shapes and sizes, it is our opinion that building the most value in an RIA comes down to the same thing: developing and capitalizing on some unfair advantage. That may sound unnecessarily mysterious or metaphorical, but it really boils down to examining the basic building blocks of firm architecture and finding out where your firm can excel like none other.

Asset Management Industry Trends Trust Companies

Q1 Shows Glimmer of Hope for Active Managers and Continued Gains for Trust Banks

The First Quarter 2017 Asset Management newsletter has been released. This quarter’s newsletter focuses on the mutual fund sector, which has been plagued by asset outflows into ETFs and other passive strategies for most of the last decade. The first two months of this year do, however, offer a ray of hope as 45% of U.S. based active managers beat their relevant benchmark, resulting in February being the first month of inflows into active products since April 2015.

Asset Management

Active Management Down But Not Out

Fresh off a 111-82 KO from the San Antonio Spurs on Saturday, our hometown Memphis Grizzlies are certainly battered but not totally eliminated from this year’s NBA title race. As this post goes to press, we still don’t know the outcome of Game 2, but it will undoubtedly be an uphill climb for the Grizz as it usually is against their divisional foes in Central Texas. Still, the Spurs/Grizz rivalry over the last ten years has not been nearly as one-sided as the battle for fund flows between active and passive investors in the ETF era.

Current Events

Will the Fiduciary Rule Ever Become Law?

RIA Central Investment Forum Follow-up

Last week, Matt Crow and I presented at RIA Institute’s 3rd Annual RIA Central Investment Forum, and this question was asked to the crowd of 70+ industry participants in attendance. Only about half the audience raised a hand. This comes after another delay last week, further extending the rule, now set to go into effect June 9th. Even most of those at the conference who thought it would eventually become law thought this deadline was too ambitious. So why the delay?

Industry Trends

Excuse Me, Flo?

Inflows and Outflows Drive Disparity in Performance between Different Classes of Asset Managers

Immediately before ordering the Soup Du Jour and duping Sea Bass into picking up his lunch tab, Jim Carrey’s character in Dumb and Dumber, Lloyd Christmas, rudely accosts his waitress at the Truk-Stop Diner with this inexplicable reference to the early 1980s sitcom starring Polly Holliday as Florence Jean “Flo” Castleberry. Decades after the movie’s release in 1994, the market seems to be postulating the same question in pricing RIAs.

Practice Management

RIA Performance Metrics: Keep an Eye on Your Dashboard

A persistent truth about investment management is that no analyst ever saw a piece of information he or she didn’t want. Professional investors are, by their very nature, research hounds – digging deep into a prospective investment’s operating model, financials, competitive landscape, management biographies, and whatever else might be relevant to try to evaluate the relative merit of buying into one idea instead of another. This same diligence doesn’t always extend to practice management, though, and we are not infrequently surprised at how little attention management teams at RIAs devote to studying their own companies.

Transactions

Lean on Me

Active Managers Combine to Stem the Tide of Fleeting Assets

Albeit unlikely that Bill Withers was alluding to the plight of active management in his 1972 hit solo, it does appear to be an apt descriptor for recent dealmaking in the RIA sector. Standard Life’s $4.7 billion purchase of Aberdeen Asset Management earlier this month follows shareholder pressure to right the ship after years of significant underperformance from both firms. The market seems less convinced.

Practice Management

An All-Terrain Clause for your RIA’s Buy-Sell Agreement

Clients writing new buy-sell agreements or re-writing existing ones frequently ask us how often they should have their RIA valued. Like most things in life, it depends. We usually recommend having a firm valued annually, and most of our clients usually do just that. “Usually,” though, is subject to many specific considerations.

Current Events

Looking through the Buffett Brouhaha

The Oracle Still Believes in Human Innovation

Since I gave up politics for Lent this year, I’ve had more time to keep up with the deeper recesses of the financial press, which led me to Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway. Buffett’s prose is a literary genre unto itself; a remarkably plain-spoken approach to making even the most complex and dull aspects of investment management simple and entertaining. If all “management letters” were penned as well, shareholders might actually read them. Perhaps that’s why they aren’t.

Investment Management

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