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RIA Valuation Insights

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March 25, 2022 Industry Trends

Does RIA Consolidation Work?

Show Me the Money

RIA group-think has been pro-consolidation for the past decade, and increasingly so. You’ve read the headlines about the pace of deals reaching a fever pitch last year and continuing into this year.  We’ve been skeptical of the believed necessity for RIA consolidation in this blog in the past, and have yet to be dissuaded from our position. But opinions are only opinions, and facts are facts. This seems like an opportune moment to check our feelings against reality. How is RIA consolidation performing so far? The verdict from the public markets isn’t very encouraging.  In this week’s post, we look at three publicly traded consolidators of wealth management businesses, Silvercrest, CI Financial, and Focus.

March 18, 2022 Current Events

What Market Volatility Means for Your RIA

Is Volatility the New Normal?

It’s de ja vu all over again.  The volatility from the onset of the pandemic two years ago has been creeping back up as investors grapple with the global implications of the war in Ukraine.  At the end of last year, most RIA owners were enjoying peak AUM and run-rate profitability.  Since then, these measures have likely taken a substantial hit as the S&P 500 and NASDAQ are down 12% and 19%, respectively.  When this happened two years ago, the market made a sharp recovery in the preceding quarters, but looking forward, we don’t know where the bottom lies.  Most RIA principals are likely grappling with a sizable decline in management fees and earnings for the next billing cycle.

With taking a look at the VIX Index, we have assessed that the market volatility is likely here to stay – at least for a while.  In this post, we explore what this volatility means for you and your RIA.  

March 11, 2022 Current Events Industry Trends

Hot Inflation and Cold Markets: RIAs Hit With a New Storm Front

February’s CPI growth came in at 7.9% year-over-year (the highest level in recent memory), and the ongoing Ukraine conflict portends further supply chain challenges that could drive prices even higher.  The front-end of the yield curve has shifted higher as market participants reason that rising inflation will force the Fed to raise rates sooner and by a greater magnitude than had been previously anticipated.

Historically, a flattening yield curve has signaled an end to a growth cycle, and so far in 2022 that certainly seems plausible.  Markets are down and valuation multiples have declined significantly, particularly in high-flying tech stocks. Read this week’s post to find out what this means for the RIA industry.

March 4, 2022 Asset Management Industry Trends

Do RIA Investors Prefer Growth Over Value?

What Public Company and Transaction Data Multiples May Tell Us About RIA Investor Preferences

This week we look to understand why private market multiples for RIAs have consistently embodied more optimism than that of their publicly traded peers. In doing so, we identify RIA investor preferences unique to the industry, and why such multiples may even be misleading indications of your firm’s value.

February 24, 2022 Practice Management Wealth Management

Value Adrift?

If You Don’t Know What’s in Your Buy-Sell Agreement, You Don’t Know What You Own

In continuing the series on buy-sell agreements, this week’s blog post was inspired by the Felcity Ace cargo ship in which the ship was carrying several thousand new Porches, Bentleys, and Volkswagens when fire spread quickly. This circumstance ultimately produced a metaphor for RIAs. When RIAs are formed, they often enter into some kind of shareholder agreement whereby the parties agree upon rules to buy or sell ownership interests under given circumstances. No one thinks much about it because the expectation of a terminal event – like sale of the business or the retirement of a member – is so far off in the future. It’s like loading 4,000 cars on a ship and sending it out to sea, assuming that, at the end of the journey, the cargo will be reliably delivered and offloaded in good condition. No one thinks about the ship while it’s on the way from one destination to another until a fire breaks out.

February 17, 2022 Practice Management Wealth Management

Additional Considerations for Your Buy-Sell Agreement

Following up on last week’s post, this week, we offer four additional considerations that you should be addressing in your firm’s buy-sell agreement. We’ve seen each of these issues neglected before, which usually doesn’t end well for at least one of the parties involved.  A well-crafted buy-sell agreement should clearly acknowledge these considerations to avoid shareholder disputes and costly litigation down the road. We highly recommend taking another look at your buy-sell agreement to see if these issues are addressed before something comes up.

February 7, 2022 Practice Management Wealth Management

Three Considerations for Your RIA’s Buy-Sell Agreement

Working on your RIA’s buy-sell agreement may seem like an inconvenience, but the distraction is minor compared to the disputes that can occur if your agreement isn’t structured appropriately. Crafting an agreement that functions well is a relatively easy step to promote the long-term continuity of ownership of your firm, which ultimately provides the best economic opportunity for you and your partners, employees, and clients. If you haven’t looked at your RIA’s buy-sell agreement in a while, we recommend dusting it off and reading it in conjunction with the discussions in this blog post.

January 31, 2022 Industry Trends Wealth Management

Buy-Sell Agreement Basics for Wealth Managers

The Importance of Buy-Sell Agreements for Wealth Management Firms, and Why It Might Be Time To Revisit Yours

Over the next several weeks, we will be publishing a series of blog posts discussing the importance of buy-sell agreements and other adjacent topics for RIA owners.  Ownership is perhaps the single greatest distraction for advisors looking to grow with their firm, but it can also be an opportunity to align interests and ensure continuity of the firm in a way that is accretive for the firm’s founders, next generation management, and clients. In this week’s post, we emphasize how having a clear and effective buy-sell agreement is imperative to minimizing costly and emotional drama that may ensue in times of planned or unplanned transition.

January 24, 2022 Current Events Industry Trends

A B2B Fintech in the RIA Space Races to Market

Dynasty IPO Ticks a Lot of Boxes, and Begs a Few Questions

Last week we were surprised by a rare sighting, an S-1 filed by a prominent player in the RIA community. Dynasty Financial Partners seeks to raise $100 million in a public offering. The mercifully terse prospectus is less than 250 pages, and is recommended reading for anyone who swims (or fishes) in this pond.

January 17, 2022 Alternative Asset Managers Asset Management Industry Trends

Alt Managers Best the Market Along with Other Types of RIAs During a Strong Year for Investment Management Firms

Publicly traded hedge fund managers and PE firms nearly doubled in value during 2021. In this week’s post, we review the investment manager performance in 2021 by sector and AUM size and provide implications for your RIA in 2022 based on the results.

January 10, 2022 Asset Management Industry Trends

Asset Management Firms See Strong Performance in 2021

The asset management industry fared well in 2021 against a backdrop of rising markets and improved net inflows. Strong performance in equity markets was a major contributor to this performance. In addition, 2021 saw modest organic growth, although there were significant variances by asset class. In this week’s post, we discuss these issues and present our outlook for the industry.

January 4, 2022 Asset Management Current Events Wealth Management

RIA M&A Q4 Transaction Update

Aggregators Continue to Drive Deal Volume in 2021

Deal count is projected to reach new highs in the fourth quarter of 2021 as market activity continues to gain momentum, likely rounding out another record-breaking year for the RIA industry. In keeping with the rest of 2021, deal volume was driven by secular trends and supportive capital markets. As market activity remains robust, competition for deals continues to favor RIA aggregators such as Mercer Advisors, Mariner Wealth Advisors, Wealth Enhancement Group, and Focus Financial Partners (FOCS), to name a few. In this week’s post, we provide more information about the aggregators and offer our thoughts for the future.

December 20, 2021 Industry Trends

‘Twas the Blog Before Christmas…

2021 Mercer Capital RIA Holiday Quiz

As year-end approaches, we hope to spread some cheer with our annual RIA Holiday Quiz. There is a chance to win a prize with a perfect score! Don’t forget to supply your contact information so we know who to send the prize to. Merry Christmas!

December 13, 2021 Margins and Compensation

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

An RIA’s margin is a simple, easily observable figure that encompasses a range of underlying considerations about a firm that is more difficult to measure, resulting in a convenient shorthand for how well the firm is doing. Does a firm have the right people in the right roles? Is the firm charging enough for the services it is providing? Does the firm have enough–but not too much—overhead for its size? The answers to all these questions (and more) are condensed into the firm’s margin.

December 6, 2021 Practice Management Wealth Management

Five Thoughts on Turning Your RIA’s Success Into Momentum

Knowing why you’re successful is a key to sustaining success. This week we offer five thoughts on turning your RIA’s success into momentum.

November 29, 2021 Practice Management

Posturing for a Successful Succession

Failing to Plan is Planning to Fail

It is never too soon to start thinking about succession planning. There are many viable exit options for RIA principals when it comes to succession planning. This week we discuss six exit options to consider while planning your eventual business transition.

November 22, 2021 Alternative Asset Managers

Major Acquisitions of Alternative Asset Managers Signal Continued Outperformance

Alternative asset managers have outperformed all other investment manager sectors in the RIA post-pandemic rebound. According to Institutional Investor, eight of the world’s ten largest investment management firms by market capital are now alternative asset managers. In the past month alone, three deal announcements of alternative asset managers by larger, traditional asset management firms and diversified financial institutions suggest the sector remains bullish.

In this week’s post, we discuss these three deals and determine several driving factors in investor demand for alternative assets and for alternative asset management firms.

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.