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RIA Valuation Insights

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November 15, 2021 Industry Trends

How Does Your RIA’s Client Base Affect Your Firm’s Value, and What Can You Do To Improve It?

We’re often asked by clients what the range of multiples for RIAs is in the current market. At any given time, the range can be quite wide between the least attractive firms and the most attractive firms. The factors that affect where a firm falls within that range include the firm’s margin, scale, growth rate of new client assets, effective realized fees, personnel, geographic market, firm culture, and client demographics (among others). In this post, we focus on the client demographics factor, explain how buyers view client demographics, and explore steps some firms are taking to reach a broader client base.

November 8, 2021 Industry Trends

In the Market for a Good Used RIA?

8 Tips for Being a Buyer in a Seller’s Market

A couple of times a week, we get calls from someone we’ve never met saying they’d like to talk with us about their RIA acquisition strategy. About half are RIAs or trustcos looking for expansion, and the other half are private equity or family offices. Very few are calling because they have a particular target in mind, fewer still have begun the process of negotiating with a potentially interested seller.

If your acquisition strategy these days is starting from scratch, you’re in a tough spot. There’s nothing on the lot, and what is available looks expensive. That doesn’t mean you should give up, though. In this post we offer some practical tips to pursue an acquisition strategy in this market environment, as well as the markets to follow.

November 1, 2021 Alternative Asset Managers

Public Alt Asset Managers Have Nearly Doubled in Value Over the Last Year

Hedge Funds and Private Equity Firms Capitalize on Market Volatility and Growing Investor Appetite for Alt Asset Products

Over the last year, alternative asset managers have bested the market and most other categories of investment management firms by a considerable margin. Favorable market conditions, heightened volatility, strong investment returns, and growing interest from institutional investors are the primary drivers behind the sector’s recent rally. Before this uptick, many alternative asset managers had struggled over the last several years.
In this post, we give an overview of the investment management history and summarize what the recent improving performance of the alt asset sector could mean for the industry.

October 25, 2021 Current Events Wealth Management

RIA M&A Q3 Transaction Update

RIA M&A Activity Continues to Reach Record Highs

Despite the dip in the second quarter of 2021, RIA M&A activity continues to reach record highs putting the sector on track for its ninth consecutive year of record annual deal volume.

As we discussed last quarter, the same three demand drivers were persistent throughout the third quarter. While fee pressure in the asset management space and a lack of succession planning by many wealth managers continues to drive consolidation, looming proposals to increase the capital gains tax rate has accelerated some M&A activity in the short-term as sellers seek to realize gains at current rates.

Increased funding availability in the space has further propelled deal activity as acquisitions by consolidators and direct private equity investments increased significantly as a percentage of total deals during the recent quarter. What does this mean for your RIA firm? Read this post to find out.

October 18, 2021 Asset Management Industry Trends Wealth Management

Asset / Wealth Management Stocks See Mixed Performance During Third Quarter

After a Strong Summer, Public Asset Managers See Stock Prices Dip as Market Pulls Back in September

RIA stocks saw mixed performance during the third quarter amidst volatile performance in the broader market. In September, the S&P 500 had its worst month since March 2020, and many publicly traded asset and wealth management stocks followed suit.

In this week’s post, we illustrate what this means for your RIA and give a prediction on the outlook of the RIA industry.

October 11, 2021 Asset Management Current Events Industry Trends

“Permanent” Capital Providers Offer a Different Type of RIA Investor

Beginning With No End in Mind

The rise of “permanent capital” providers is both in response to and appropriate for the current environment of premium entrance multiples in the RIA space. While making a permanent capital investment doesn’t eliminate the depressive effects of current valuations on returns, it does help to mitigate them.

Absent self-imposed pressure to generate an exit within the foreseeable future, RIA investors can focus on opportunities for sustainable and growing distributions – the real value of investing in investment management.

October 4, 2021 Practice Management Transactions Trust Companies

Five Takeaways From the Association of Trust Organizations (ATO) 2021 Annual Meeting

After a year off, ATO held its annual meeting at the Ritz-Carlton in Amelia Island, Florida to discuss industry trends, practice management, transaction activity, and the current competitive landscape.

In this week’s post, we discuss our main takeaways from the meeting.

September 20, 2021 Practice Management Transactions

Four “To Dos” Before You Sell Your Investment Management Firm

Considerations for Every RIA Owner

Selling the business you built from the ground up is a bittersweet experience. Many business owners focus their efforts on growing their business and push planning for their eventual exit aside until it can’t be ignored any longer. While this delay may only prove mildly detrimental to deal proceeds in other industries, in the investment management space, there are very few buyers who will be interested in YOUR business without YOU (at least for a little while).

Long before your eventual exit, you should begin planning for the day you will leave the business you built. There are many considerations for investment managers contemplating a sale, in this post we suggest four ways that you should start.

September 13, 2021 Transactions

Selling Your RIA? Four Ways to Bridge the Valuation Gap

Valuation gaps are frequently encountered in RIA transactions. Buyers and sellers naturally have different perspectives that lead to different opinions on value. These different perspectives, unsurprisingly, lead to different opinions on value, and the gap can be substantial. Bridging that gap is key to getting a deal done. In this week’s post, we address four ways that buyers and sellers can bridge a valuation gap.

September 7, 2021 Industry Trends Transactions

Not Every RIA Buyer Is a Control Freak

Despite Conventional Wisdom, Some Investors Prefer Minority Positions

The pricing of minority transactions in the RIA space leaves some people scratching their head. Traditional valuation theory holds that investors pay less for minority interests than controlling interests. Reality suggests otherwise.

August 30, 2021 Current Events Wealth Management

Growing Pains

Is the RIA Industry in Growth Mode or Shake-Out?

While the wealth management industry is not new, the amount of change, churn, and growth that has occurred in the industry over the past ten years make it easy to forget how far the RIA industry has come since the heyday of broker-dealers. Contextualizing the challenges facing the wealth management industry leaves one to wonder if many of these trends are no more than growing pains in the sector’s life cycle. And if so, what might such analysis suggest about the prospects for the fiduciary model?

August 23, 2021 Practice Management Transactions

Why Is No One Selling in a Seller’s Market?

Even in One of Hottest M&A Markets in Recent History, Most RIA Principals Still Do Not Plan to Sell Their Business in the Next Three Years.

Did you know 67% of RIA principals plan to sell, merge, or conduct a transaction through which they will leave the business in the next 5 years? Yet, only 36% have either a signed ownership agreement or strategy in place? There are some explanations to this disconnect that we discuss in this post. Because succession planning is so important, we conclude by discussing how to ensure a successful succession.

August 16, 2021 Trust Companies

Treasures in the Attic

The Value of Future Fiduciary Appointments

Independent trust companies are frequently named in wills to serve as the trustee of an estate or living trust. These appointments may create a revenue opportunity for an independent trust company next year or fifty years from now. A trust company is sometimes notified of their assignment but isn’t always. Future fiduciary appointments certainly have some value; but how much and how do you measure it?

August 10, 2021 Industry Trends

Consolidation in the RIA Industry

RIAs Are Being Acquired at a Record Pace, But Does That Really Mean the Industry Is Consolidating?

Consolidation is a theme that has a lot of traction in the RIA industry: that a growing multitude of buyers are scrambling to outbid each other for a limited and shrinking number of firms. With the rapid pace of deal activity in the RIA industry, you might expect to see the number of firms decline, as that is typically the norm for consolidating industries. But that’s not been the case in the RIA industry, at least yet. Despite consolidation pressures and record levels of acquisition activity, the reality is that the number of RIAs continues to increase, with formations outpacing consolidation.

Another way to track consolidation is to look at how assets under management are distributed across firms of different sizes, rather than at the number of firms. The industry hasn’t seen significant consolidation by this metric either. So what does all this mean for the industry? This post tackles that question.

August 4, 2021 Current Events Transactions

The Fundamental Value of RIAs? Scarcity.

If the Choice Is Buy vs. Build, "Build" Doesn’t Even Come Close

Are RIA transaction multiples getting out of hand? Contrary to the usual laws of supply and demand, each week it seems like we hear about another blockbuster deal rumored to have happened at an astronomical price, and correspondingly, we meet a new capital source we hadn’t known previously who is looking for way to implement an acquisition strategy in the RIA space. Is this FOMO on a grand scale, or just part of a grander moment in market dynamics?

July 27, 2021 Alternative Asset Managers Industry Trends

Strong Quarter Propels Alt Managers to New Highs

The second quarter was especially kind to the alt manager sector, which benefited from favorable market conditions and growing interest from institutional investors. These trends initially took root last Fall before gaining considerable momentum in the second quarter.

July 21, 2021 Current Events Wealth Management

RIA M&A Q2 Market Update

Whispered Numbers Shout

RIA MIA activity slowed somewhat in the second quarter of Q2, but RIA markets are still on track to record the highest annual deal volume on record. As we discussed last quarter, fee pressure in the asset management space and a lack of succession planning by many wealth managers are still driving consolidation. But the increased availability of funding in the space, in tandem with more lenient financing terms, has also caused some of this uptick. But could some of this activity be attributable to the RIA rumor mill and the hype of double-digit multiples in the space?

July 12, 2021 Asset Management Wealth Management

Asset / Wealth Management Stocks See Another Quarter of Strong Market Performance

Publicly Traded Asset / Wealth Managers See Continued Momentum Through Second Quarter as Market Backdrop Improves

On balance, the outlook for RIAs has generally improved with market conditions over the last several months. AUM has risen with the market over this time, and it’s likely that industry-wide revenue and earnings have as well. With markets near all time highs, most RIAs are well positioned for strong financial performance in the back half of the year. This week’s post details the past performance and outlook for traditional asset and wealth managers, alternative asset managers, as well as aggregators and multi-boutiques.

June 28, 2021 Practice Management

What Is Your Firm’s “Brand” Worth?

Building the Value of an RIA Involves Making it More Than a Group of Professionals

In this post, we look at brand value. Much of the debate over the value of investment management firms can be distilled into one question: what is the value of a firm’s brand? More than “what’s in a name?”, the question is an investigation into the relationship between client and investment management service provider. Do clients of your firm define their relationship as being with your firm, or with an individual at your firm?

June 21, 2021 Transactions Wealth Management

Fairness Opinions

Evaluating a Buyer's Shares From the Seller's Perspective

Stock consideration is rarely discussed in RIA transactions, but it is a common financing feature in other industries. We expect to see more stock for stock deals in RIAs for two reasons. As public investment management firm multiples continue to push higher, buyers will be tempted to take advantage of multiple-arbitrage in certain situations. 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? Jeff Davis has a few thoughts.

June 14, 2021 Industry Trends

To the Moon or Back to Earth?

RIA Valuations Have Increased Substantially Over the Last Year, but That Doesn’t Necessarily Mean These Stocks Are Overpriced

A few weeks ago we blogged about how RIA stock prices have increased over 70% on average over the last year. This rapid ascent begs the question if valuations have gotten too rich with the market run-up during this time. In this post, we answer this question.

June 7, 2021 Practice Management Wealth Management

Succession Planning for Independent RIAs

The Best Time To Plan Is Now

Succession planning has been an area of increasing focus in the RIA 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. However, if you’re a founding partner or selling principal, it’s never too soon to start thinking about succession planning. Proper succession planning needs to be tailored, and a variety of options should be considered.

June 1, 2021 Transactions Wealth Management

Purchase Price Allocations for Asset and Wealth Manager Transactions

There’s been a great deal of interest in RIA acquisitions in recent years from a diverse group of buyers ranging from consolidators, other RIAs, banks and diversified financial services companies, and private equity. These acquirors have been drawn to RIA acquisitions due to the high margins, recurring revenue, low capital needs, and sticky client bases that RIAs often offer. Following these transactions, acquirors are generally required under accounting standards to perform what is known as a purchase price allocation, or PPA. In this post, we describe what a purchase price allocation is and discuss the common intangible assets acquired in the purchase of private asset and wealth management firms – existing customer relationships, tradename, non-competition agreements with executives, and the assembled workforce.

May 25, 2021 Industry Trends Practice Management

Post-Pandemic Tax Planning for RIAs

Is It Time To Consider a Change in Your Corporate Structure, or Your Address?

Dynasty’s move from New York to Florida and UBS’s relocation to Tennessee got plenty of attention. Post-pandemic, we’re starting to hear of smaller RIAs contemplating similar moves. There’s plenty of opportunity, because most investment management firms still call high-cost, high-tax states home.