Category

RIA Valuation Insights

---

February 4, 2021 Practice Management

Being Human: The Secret to Authentic Advisor Videos

Guest Post by Megan Carpenter of FiComm Partners

Over the years, we have repeatedly said that the wealth management side of the investment management business is healthier than the asset management side.  Unlike asset managers whose clients are likely to jump ship after a few bad quarters, wealth management is based on client relationships and a manager’s ability to inspire confidence in his or her clients.   

Wealth managers spent their careers perfecting in-person communications to connect with clients.  2020’s transition to WFH made most of these communications virtual.  In this guest post, Megan Carpenter provides tips to improve your Zoom communication skills with clients.

February 2, 2021 Industry Trends

What Does “The Market” Say Your RIA Is Worth?

GameStop Theory in a Consolidating Industry

Long before Reddit investors discovered that you could Occupy Wall Street more effectively with out of the money call options than you can with tents, Porsche briefly turned itself into a hedge fund and used a similar tactic to try to take over Volkswagen.  The story sheds some light on how market pricing does, and does not, reveal the value of a business.  Benchmarking the value of an RIA off the behavior of a few aggressive consolidators has similar limitations.

January 25, 2021 Industry Trends

RIA Industry Extends Its Bull Run Another Quarter

Continuation of Market Rebound Drives All Categories of Publicly Traded RIAs Higher in Q4 2020

Share prices for publicly traded investment managers have trended upward with the market since March’s collapse.  Aggregators fared particularly well over the last nine months on low borrowing costs and steady gains on their RIA acquisitions.  Traditional asset and wealth managers have also performed well over this time on rising AUM balances with favorable market conditions. Against this backdrop, we discuss recent market performance, implications for your RIA, and a potentially improving outlook.

January 22, 2021 Transactions

Playing the Match Game: Finding the Perfect Fit Between Buyers and Sellers

Guest Post by Louis Diamond of Diamond Consultants

For both buyers and sellers, knowing where your firm fits into the RIA M&A landscape is an important first step towards identifying compatible transaction partners.  The universe of RIA sellers can be categorized based on firm culture, the motive behind the transaction, management’s expectations for post-transaction roles, liquidity needs, the status of next-generation management, and the like.  As RIA transactions have proliferated in recent years, several different buyer profiles have emerged that address the concerns of these different seller types.  In this week’s guest post, Louis Diamond of Diamond Consultants identifies four common buyer profiles and the types of sellers that fit well with each.

January 18, 2021 Asset Management

Small/Mid-Sized Asset Managers Can Stay Relevant

Asset Management Industry Outlook

Over the last decade, investors have generally earned a higher net return by investing in passive vehicles rather than actively managed funds. Passive market share is now greater for U.S. equity investing than active. While large asset managers (i.e. BlackRock), are protected by sheer scale, how do small/mid-sized asset managers stay relevant in this environment?

January 15, 2021 Industry Trends

Silver Linings: Using Crisis to Improve Your RIA’s Health

Guest Post by Matt Sonnen of PFI Advisors

Early in the COVID pandemic, PFI Advisors published an article outlining how RIAs could perform an “Operational Diagnostic” to improve their profitability.  Matt Sonnen wrote, “For now, advisors are focusing on exactly what they should be doing – guiding their clients through this turmoil and keeping them calm and focused on their long-term financial goals.  When the time is right, however, I’ll forward this article to our clients so they can begin the work of focusing on the bottom line…”

Nine months later, most RIAs and their clients have recovered from the market volatility and ended up having a very good year, at least on paper.  Now’s the time for RIA principals to consider how they can advance their firms to be ready to meet the next challenge with greater ease.

We’re featuring Matt Sonnen’s wisdom on operational best practices and business strategy in our upcoming conference, RIA Practice Management Insights, on March 3 and 4. 

January 11, 2021 Current Events Transactions

Q4 2020 RIA Transaction Update

Deal Activity Rebounds After Brief Lull; Deal Terms and Multiples Remain Robust

After a brief lull during the second quarter of last year, RIA deal activity surged in the fourth quarter, rounding out a record year in terms of reported deal volume.  Concerns about the pandemic and market conditions were quickly shrugged off, as deal terms and the pace of deal activity returned to 2019 levels after the brief pause at the peak of the shutdown. 

January 7, 2021 Practice Management

Announcing the Inaugural RIA Practice Management Insights Conference

Professionalizing the Business of Investment Management

We are excited to announce that we are putting together a virtual conference for RIAs that is focused entirely on operational issues – from staffing to branding to technology to culture – issues that are as easy to ignore as they are vital to success. The RIA Practice Management Insights conference will be a two half-day, virtual conference held on March 3 and 4.

December 22, 2020 Industry Trends

‘Twas the Blog Before Christmas…

2020 Mercer Capital RIA Holiday Quiz

As year-end approaches, we hope to spread some cheer with our RIA holiday quiz. Merry Christmas!

December 14, 2020 Practice Management

New York at Risk of Losing RIA Hub Status

Goldman’s Recent Plans to Move Its Asset Management Division to South Florida, a Possible a Sign of More to Come for the Empire State

This week’s post analyzes recent RIA moves out of the Big Apple and what it could mean for your firm.

December 8, 2020 Current Events Transactions

Did Macquarie Pay 11x EBITDA for Waddell & Reed? Yes and No

Catching a Falling (Butter) Knife

Last week, Macquarie Group announced its acquisition of Waddell & Reed (WDR) for $1.7 billion. At first glance, the pricetag implies an EBITDA multiple of over 11x and some are asking why Macquarie’s new CEO paid such a premium for a business whose AUM has halved over the last six years. Unfortunately, it’s not that simple. In this post, we dig into the deal economics and explain why paying a premium does not necessarily mean Macquarie over paid.

December 1, 2020 Transactions

The Role of Earn-Outs in RIA Transactions (Part Three)

In last week’s blog post, we covered five considerations for designing earn-outs. While there is no one set of rules for structuring an earn-out, keeping those conceptual issues in mind can help anchor the negotiation.  This week, we look at an example RIA transaction to illustrate how the considerations come into play when buyers and sellers are working out deal pricing and structure. 

November 23, 2020 Transactions

Avoiding Buyer’s Remorse

The Role of Earn-Outs in RIA Transactions (Part Two)

Like old sports cars, acquisitions don’t come with warranties, so protecting yourself against buyer’s remorse is critical. Even with escrows and punitive terms, you can’t guarantee that you’ll get what you pay for in an acquisition; but, with a properly structured earn-out, you can at least pay for what you get.

November 16, 2020 Transactions

The Role of Earn-Outs in RIA Transactions (Part One)

In part one of this series of posts, we explore the basic economics of contingent consideration and the role it plays in negotiating RIA transactions.

November 9, 2020 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 are 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 of these questions (and more) are condensed into the firm’s margin.

October 26, 2020 Alternative Asset Managers Asset Management

2020 Alternative Asset Manager Update

Are Sustainable Investments the Future of Investment Management?

The market for sustainable investments has grown to over $12 trillion in the U.S. and the movement of investable assets into sustainable strategies is expected to accelerate. In this week’s post, we link to the newly published 2020 Alternative Asset Manager Update authored by Taryn Burgess, CFA, ABV. The update reviews the growth of sustainable investing over the last decade and considers the valuation implications for your RIA.

October 20, 2020 Current Events

2020: Too Good To Be True?

Despite Harrowing Moments, the RIA Community Is Prospering

Now, after seven months of living with the pandemic, there is still no end in sight.  We might only be halfway!  But despite the barrage of challenges, the RIA community has embraced WFH, profited from buoyant markets, and resumed a relentless pace of M&A.  It has been, if very strangely, a very good year. Is this a sign of industry resilience?  Or an awful lot of luck? 

October 12, 2020 Transactions Wealth Management

Low Rates and NIM Margins Spur Bank Interest in the Wealth Management Sector

Executives Seek Revenue Streams That Aren’t Tied to Interest Rate Movements

COVID-19 adversely affected sector M&A for a couple of months when most of the U.S. was under shelter at home/safer in place orders. However, deal activity is recovering quickly and now could be further accelerated as banks look to replace lost interest income with fee-based revenue. An increasing number of clients on the banking side of our practice are showing interest in the wealth management space, and it’s easy to understand why. Long-term rates hovering at historic lows have significantly impaired net interest margins, so banks are exploring other income sources to fill the void. Wealth management is a natural place to start since so many banks already offer financial advisory services of one form or another.

October 5, 2020 Industry Trends

Continuation of Market Rebound Drives Most Categories of Publicly Traded RIAs Higher in Q3

RIA Market Update

Share prices for publicly traded asset and wealth managers have trended upward during the second and third quarters after collapsing in mid-March with the broader market.  Alt asset managers have fared well over the last year as volatility and depressed asset prices have created an opportunity to deploy dry power and raise new funds in certain asset classes.  Traditional asset and wealth managers have generally moved in line with the broader equity market, while leveraged RIA aggregators have seen more volatility, both up and down, as the market bottomed in March before trending upward.

September 25, 2020 Margins and Compensation

How Growing RIAs Should Structure Their Income Statement (Part II)

Compensation Conundrums

Personnel costs are by far the largest expense item on an RIA’s P&L, but we’ve found significant variation in how RIA owners think about compensating their employees (and themselves).  This is the second post of a two-part series on compensation best practices for growing investment managers which focuses on how to structure partner compensation. 

September 21, 2020 Margins and Compensation

How Growing RIAs Should Structure Their Income Statement (Part I)

Compensation Conundrums

Personnel costs are by far the largest expense item on an RIA’s P&L, but we’ve found significant variation in how RIA owners think about compensating their employees (and themselves).  We’ll devote the next two posts to discussing best practices from an outsider’s perspective. This week, we address how to structure employee compensation when you are not ready to bring on an equity partner.

September 15, 2020 Current Events

The Investment Management Sector Is Being Bombarded … With Money

What Do You Do When Liquidity Matters More Than Fundamentals?

After the initial punditry on whether or not the 2020 market crash/recession and recovery would be “L” shaped, “U” shaped, “V” shaped, or “W” shaped, it has become clear that the recovery is “K” shaped, with higher-skilled and higher paying jobs recovering rapidly, and many lower-skill, lower-paying jobs declining.  What does this mean for RIAs?  Most RIA clients are higher-income professionals who are paying more attention to their investment portfolios in this environment – not less.   Bullish for clients = bullish for the industry.

September 1, 2020 Current Events

SEC Expands Accredited Investor Definition: What Does It Mean for RIAs?

Last Wednesday, the SEC announced an expansion to the definition of “accredited investor” to include individuals based on professional certifications and inside knowledge of issuers while keeping the old wealth and income thresholds the same. What does this mean for RIAs, their clients, and for capital markets?

August 24, 2020 Current Events Transactions

Gin, Business Valuation, and Ryan Reynolds

Earn-Outs in RIA M&A

Earn-outs are commonly used in RIA deals, and we expect contingent payments to make up an even larger percent of deal consideration for the next few months, quarters, or years depending on how long the current economic uncertainty lasts.  And while we hope most of our clients would be thrilled by the prospect of $335 million in upfront cash payments, we don’t want you to end up feeling as Ryan Reynolds did last week.  In this post, we explain what an earn-out is, why they are commonly used in RIA transactions, and how earn-outs may be used as a saving grace for deal activity in the current economic environment.