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RIA Valuation Insights

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July 21, 2023 Industry Trends Wealth Management

Trending: The Independent Trust Company

The independent trust industry has been flourishing, despite market turbulence, due to increased demand for trust administration services, the relative resilience of trust company fees, and demographic shifts favoring wealth growth. Companies are adapting to changes in the term structure of interest rates, benefiting from fee structures that provide stability in adverse market conditions, and capitalizing on the expanding pool of high-net-worth individuals. With evolving trust laws, growth opportunities tied to generational wealth transfer, and the importance of effective succession planning, independent trust companies are poised for a promising future in the competitive financial landscape.

July 14, 2023 Industry Trends Transactions

RIA M&A Update

The first half of 2023 witnessed a minor decline in wealth management M&A deal volume, but an increase in total transacted AUM and deal size, fueled by a surge in the number of deals with AUM over $1 billion and RIA partnerships with private equity firms. This robust RIA deal activity demonstrates the resilience of the sector in contrast to a significant decrease in overall M&A transaction value across all industries. As RIAs continue to offer a growth strategy for strategic buyers and investors, it is imperative for sellers to identify their motivations, the type of partner they seek, and align their goals with the buyer’s strategy to ensure post-transaction satisfaction.

July 7, 2023 Asset Management Industry Trends Wealth Management

Q2 2023: RIAs Finish Strong Following June’s Bull Market

Steady Interest Rates Calm Investor Nerves, Boosting RIA Performance

The second quarter of 2023 saw share prices for asset and wealth management firms reflect the broader market’s growth, particularly following the S&P 500’s transition into a bull market in June. However, smaller asset managers underperformed compared to their larger counterparts and the S&P 500, while earnings multiples for publicly traded RIAs saw an 8.8% increase due to a favorable interest rate environment and higher AUM balances. The upcoming report on Q2 M&A activity is set to provide further insight into these trends, and while comparisons with closely held RIAs require caution, focusing on core business practices can offer protection from market volatility.

June 30, 2023 Transactions

Dust Off That Buy-Sell Agreement!

An Outdated Contract Is Hazardous to Your Wealth

This week’s post discusses the importance of regularly reviewing and understanding the terms of buy-sell agreements for RIAs, as these agreements can often become sources of contention when unexpected events occur. We highlight issues related to determining the transaction price during a buy-sell event, with scenarios such as fixed-price and formula pricing causing potential misunderstandings or disputes. We also offer advice on avoiding such conflicts, such as getting your RIA valued regularly to manage expectations and drafting fair pricing mechanisms, urging owners to familiarize themselves thoroughly with their buy-sell agreements.

June 22, 2023 Practice Management Transactions

4 Considerations for Your RIA’s Buy-Sell Agreement

Understanding the intricate complexities of buy-sell agreements can provide a basis for shareholder transactions and mitigate costly legal disputes down the road. We explain the pitfalls of rules-of-thumb based valuation measures, the importance of the ‘As Of’ date, the necessary qualifications of your appraiser, and how updating your agreement annually can manage expectations and avoid surprises. Stay informed and avoid the inevitable challenges by familiarizing yourself with these key components of a well-crafted buy-sell agreement.

June 16, 2023 Transactions

Purchase Price Allocations for Asset and Wealth Manager Transactions

While closing a deal is an important milestone, it’s not the end of the process. After the ink dries on the purchase agreement, there’s a host of issues that the acquiror must address regarding the integration of and accounting for the acquired firm. In this blog post, we address one such post-transaction accounting issue. After a transaction, acquirers are generally required under accounting standards to perform what is known as a purchase price allocation, or PPA. This post explores the purchase price allocation process as it relates to acquisitions of assets and wealth management firms, highlighting the valuation considerations surrounding intangible assets like customer relationships, tradename, non-competition agreements, and the assembled workforce.

June 9, 2023 Current Events Industry Trends Practice Management Transactions

ISO: Cheap Capital

All Models Are Wrong, Some Are Useful

The much-ballyhooed consolidation trend in the RIA space is in a state of transition. Many acquisition platforms, fine-tuned in an era of zero interest rates and plentiful equity capital, are challenged in the post-ZIRP environment. Picking up on economist George Box’s observation that “all models are wrong, some are useful,” it’s worthwhile to survey the acquisition landscape and see what worked and what still works.

May 26, 2023 Practice Management Transactions

Four To-Dos Before You Sell Your Investment Management Firm

Considerations for Every RIA Owner

The intricate journey of selling a business you’ve built can be daunting, filled with complex emotions and countless considerations. This process, particularly in the investment management space, requires thorough preparation, strategic thinking, and an understanding of the many dynamics involved. In this post, we explore four critical areas that every investment manager must consider: developing a pragmatic pricing expectation, establishing a solid rationale for selling, preparing your firm’s financial documents, and understanding the tax implications of different deal structures.

May 19, 2023 Current Events Transactions

The Devil in the Details

Diving into the CI US/Bain Transaction

CI Financial’s pivot from a planned IPO to the sale of a 20% convertible preferred stake of its US wealth management division to a consortium of institutional investors is not only a significant move for CI Financial but also sends ripples through the wealth management industry. In this post, we explore the details of this transaction, the potential consequences for CI Financial, and the broader implications for the wealth management industry.

May 11, 2023 Industry Trends Transactions

RIA Dealmaking in a Post-ZIRP Market

Terms Bridge Seller Expectations and Market Realities

The secret of selling your RIA for peak pricing lies in the terms, but it’s not as straightforward as it may seem. Investment management transactions these days involve creative deal terms, risk-sharing and evolving market conditions that keep the market bustling, despite a host of economic challenges. From managing buyer-seller relationships to balancing risk and reward, we explore how industry players are adapting to maintain the appearance of peak pricing, while carefully guarding against market downturns. Find out how the art of the deal is being redefined and learn how to navigate the market to achieve your transaction goals.

May 5, 2023 Current Events Industry Trends Practice Management

Common Valuation Misconceptions about Your RIA

Old Rules of Thumb, Recent Headlines, and the Endowment Effect

The endowment effect has an impact on your RIA and oftentimes rules of thumb and recent headlines can lead to overvaluation. We share the nuances of valuing your firm, from assessing cash flow, growth, and risk to understanding the relevance of non-systematic risks. Uncover the factors that truly influence your RIA’s value and learn how an independent valuation can help you make informed decisions for your firm’s future.

April 28, 2023 Margins and Compensation Practice Management

RIA Margins: How Does Your Firm’s Margin Affect Its Value?

Curious about what makes a firm’s margin a powerful indicator of its performance? We explain the “typical margin” for RIAs and how different segments of the investment management industry have varying margins based on their business models. Learn why future margin prospects are more significant than the current margin when evaluating the worth of an RIA and how to protect margins in a rapidly changing industry, and how to generate stable, improving margins that lead to higher valuation multiples when the firm is eventually sold.

April 21, 2023 Asset Management Current Events

Challenging Year Ahead for Asset Managers

Asset Management Firms Struggle as Market Downturn and Fund Outflows Persist

2022 was a tough year for the RIA industry and the stock market, as persistent inflation, rising interest rates, and geopolitical tensions shook the economy. Asset management firms felt the pressure, but what factors drove this decline and how did it impact the industry? Discover the challenges faced by both active and passive funds, and explore the outlook for asset managers in the face of an uncertain future.

April 14, 2023 Industry Trends Transactions

RIA M&A Update

RIA M&A activity has remained resilient through the first quarter of 2023, even as macro headwinds have emerged for the industry over the past year.  Fidelity’s March 2023 Wealth Management M&A Transaction Report listed 68 deals through March 2023, up 19% from the 57 deals executed during the same period in 2022.  These transactions represented $108.3 billion in AUM—a 21% increase from the first quarter of 2022.

April 7, 2023 Industry Trends

Q1 2023: The Market Rallies, RIAs Stay Behind

RIAs started the quarter strong, but bank failures and interest rate hikes led to underperformance. Alternative asset managers, however, saw a last-minute rally during the final few days of the quarter, leading to this category outperforming the S&P during the period.

March 31, 2023 Current Events Practice Management

An RIA’s Independence Is Valuable

Selling Control Is Losing Control

Harry Truman kept a sign with his personal slogan, “The Buck Stops Here,” on his desk. The reverse side of his sign, which faced the President, says, “I’m from Missouri.” Specifically, Truman grew up in Independence, Missouri, and took pride in his hometown. RIAs would be well advised to value their independence as much.

March 24, 2023 Practice Management

Succession Planning for Investment Management Firms

The Best Time To Plan Is Now

Succession planning has been an area of increasing focus in the investment management industry, particularly given what many are calling a looming succession crisis. The demographics suggest that increased attention to succession planning is well warranted: over 60% of RIAs are still led by their founders, and only about a quarter of them have non-founding shareholders. Yet when RIA principals are asked to rank their firm’s top priorities, developing a succession plan is often ranked last.

March 16, 2023 Asset Management

The Relationship Between AUM Multiples and RIA Performance

AUM multiples are an often-cited valuation metric in the RIA industry as a back-of-the-envelope way to quickly estimate a firm’s value. The simplicity of AUM multiples is also the greatest pitfall. In our post this week we focus on the key drivers of AUM multiples and other ways to improve the value of your assets under management.

March 10, 2023 Industry Trends Transactions

Preparing for the Unknown Unknowns

The Importance of Sell-Side Due Diligence

Last weekend I had a chance to join my dad for the annual Concours on Amelia Island, a fantastic gathering of car collectors and interesting automobiles of all kinds and eras.  Coinciding with the weekend’s events were collector car auctions from all the major houses.  A cursory review of prices paid and those auction sell-through rates suggest that there’s not much of a recessionary cloud hanging over the economy yet—at least not the economy inhabited by classic car buyers. 

One car that caught my attention last weekend sold for a comparatively modest sum.  The beautiful 1949 Packard convertible pictured above and featured at the RM Sotheby’s auction brought just under $45,000.  If you’re younger than 65, you can be forgiven for not knowing Packard, as the marque was discontinued in the late 1950s.  Bad markets and a bad transaction got the best of a great automaker, which is a cautionary tale for anyone planning the future of their business. This week, we review lessons from the consolidation of the automobile industry that have merit in the RIA space.

March 3, 2023 Transactions

When a Buyer Offers You Stock

Fairness Considerations in Equity Financed Transactions

Stock consideration is rarely discussed in RIA transactions but is a common financing feature in other industries. We expect to see more stock-for-stock deals in RIAs for two reasons. As debt financing becomes more expensive (and scarce) and consolidators start to question how much leverage they want to maintain, buyers will be tempted to use equity consideration instead of cash. And if capital gains tax rates rise and sellers can use rollover equity to defer gains, the structure will become more attractive to sellers. How can a seller decide whether or not to accept a suitor’s stock? Find out in this week’s post.

February 23, 2023 Practice Management

The Relationship Between Revenue Multiples and EBITDA Margins

Revenue multiples are cited perhaps as much as any other valuation metric in the RIA industry. In this week’s post, we focus on their key drivers and ways to improve the value of your management fees.

February 17, 2023 Current Events Industry Trends Wealth Management

As Deal Momentum Slows, What’s Next for Wealth Management Consolidation?

Early last year, as market conditions began to deteriorate, we (along with many others) predicted a coming slowdown in RIA M&A activity. Despite this environment, we were initially proven wrong: RIA M&A activity seemingly defied gravity as the pace of deal activity continued to keep pace with record 2021 levels. Now, the data suggests that deal activity is beginning to lose momentum. So, is the slowdown here to stay?  What does this mean for the future of deal activity?  In this week’s post, we discuss a few predictions for the year ahead.

February 10, 2023 Asset Management Current Events Industry Trends

Investment Management Is a People Business

Who’s in the Driver’s Seat?

Investment management is a people business, and there are aspects to a people business which do not yield to financial modeling. This week, Matt Crow addresses industry conundrums for which there are no easy answers.

February 3, 2023 Asset Management Margins and Compensation Practice Management

Whitepaper Release: Compensation Structures for Investment Management Firms

For this week’s post we’re introducing our whitepaper on compensation structures for investment management firms. This whitepaper is designed to help you navigate the various compensation models to optimize firm growth and employee retention.