Category

Practice Management

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May 9, 2025

Succession Is a Process, Not an Event

Why RIA Owners Need to Plan Early and Continuously

Succession planning is often misunderstood as a one-time event—a moment when an RIA owner transitions leadership and exits the firm. In reality, succession is best viewed as a process, not a single event. It is a strategic, ongoing effort that requires continuous planning and preparation over many years. For RIA owners, the stakes are high: a well-executed succession plan not only ensures the firm’s longevity but also enhances its value, whether you ultimately transition internally or sell to an external party.

In this week’s post, we address the process of succession and the role of internal resources such as next-generation leadership, as well as how investing in these areas increases your firm’s value—regardless of whether you choose an internal or external transition.

March 7, 2025

Succession Planning Options for RIAs

The RIA industry is facing a potential succession crisis, with many firms still helmed by their founders and lacking in non-founding shareholders. Although succession planning is vital for the long-term success of these firms, it is often sidelined in favor of immediate growth strategies. This article delves into various solutions for RIA principals, from internal transitions to external acquisitions, highlighting their benefits and potential drawbacks.

February 7, 2025

Who Should Own Your RIA?

The Best Ownership Model Is One That Supports the Business Model

Aside from the initial startup years, when fledgling RIAs struggle to achieve profitability, the most difficult period that most firms endure is the transition from the founding generation of leadership to G2. For those that make the transition, getting from the second generation to the third, and so forth, is comparatively easy. Much of this difficulty relates to a contemporaneous transition of ownership — not just the identities of the owners but also the structure of the ownership. In this week’s post we look at the four primary RIA ownership models and discuss how to find the best one for your RIA.

December 13, 2024 Valuation

Are Difficult Partner Discounts Applicable to RIAs?

A few months ago, our team attended a business appraisal conference in Portland, Oregon, where we learned about a case involving a “Difficult Partner Discount.” Since we’re often hired when business owners can’t agree on price, we’re well aware of partnership disputes, but are pretty confident we’ve never directly applied a “Difficult Partner Discount” to the value of a business or interest therein. That doesn’t mean that partner disputes and departures can’t significantly impair the value of a company, which we address in this post.

December 6, 2024

The Four Types of RIAs

And What It Means for Practice Management

No two RIAs are identical but broadly speaking, firms that seek to serve the same types of clients tend to end up with similar-looking business models. A firm’s structure tends to reflect the types of clients the firm seeks to serve and the value proposition it offers to those clients. The result is that firms tend to cluster around a handful of distinct models, and identifying what those models are and how they differ can be a useful exercise both in analyzing a particular firm and in thinking about practice management issues.

November 8, 2024 Valuation

Organic Growth and RIA Valuations

Organic growth is a key metric for the RIA industry, and it’s one that varies widely across firms. As such, it’s a key differentiator between firms, and it’s also an impactful assumption in determining a firm’s value. In this week’s post we explore organic growth trends in the industry and the impact of organic growth on valuation.

November 1, 2024 Valuation

Component Analysis of RIA Returns

A Method to Examine Valuation, Risk Management, and Return Optimization

A racecar is an example of something that, as a whole, is greater than the sum of its parts. An RIA is another example. But, breaking down an RIA into constituent functions yields certain understandings that cannot be seen clearly by focusing on the whole. In this post, we think about what can be learned from component analysis of RIA returns.

September 25, 2024 Margins and Compensation

Striking the Right Balance Between Margins and Compensation

In the investment management world, evaluating a firm’s margin isn’t as simple as “more is better.” For RIAs, margin reflects efficiency, but it also reflects the firm’s tradeoffs with compensation.  Investment management is a talent business, and striking the right balance between margin and employee compensation that allows the firm to attract, retain, and incentivize talent is critical to an RIA’s success.

September 20, 2024 Wealth Management

Five Ideas to Turn Your RIA’s Success Into Momentum

To the surprise of many, it’s been another very good year for the RIA community — but success can be fleeting. Whatever brings about the rollover in industry trend lines, we all know it’s coming at some point. So, if 2024 is indeed the peak of the cycle for the investment management industry, what will you one day wish you had done now?

September 6, 2024 Active Management Industry Trends Insights

Are Retirement Plans an Underappreciated Growth Opportunity for RIAs?

Despite the growth of the defined contributions sector, many RIAs have avoided retirement plans in favor of larger opportunities. This leads to the question: are retirement plans an underappreciated growth opportunity for RIAs?

August 30, 2024 Current Events

Funding Your RIA’s Buy-Sell with Life Insurance Just Got Much Harder

SCOTUS Compels Closely-Held Business Owners to Review a Potential Problem in Their Ownership Agreement

As long as I can remember, RIAs and other closely-held businesses have used corporate owned life insurance to fund redemption provisions in buy-sell agreements. That practice is now in doubt, as the U.S. Supreme Court recently ruled that entity-purchased life insurance is additive to value for fair market value purposes. Has SCOTUS rendered what was long-standing conventional wisdom useless, or is the ruling subject to interpretation? Time will tell. For now, readers of this blog post will want to study the ruling and its implications for their own buy-sell agreements.

May 24, 2024 Margins and Compensation Transactions

Formula Pricing Gone Wrong

What Happens If Your Buy-Sell Agreement Prices Your Firm Too High or Too Low?

More often than not, the formula prices we encounter do more harm than good. The simplicity of formula pricing equations means they don’t consider important factors like debt, non-recurring items, loss of key staff or large customers, market conditions, or offers to purchase. Formulas can ground expectations but may set expectations unrealistically low or high, provide a false sense of security, and encourage partner behaviors that do not support the business model.

May 17, 2024 Asset Management Transactions

Are Toxic Cultures the Silent Killers of the Asset Management Industry?

We’ve written about the external headwinds facing asset managers relative to other sectors of the investment management industry with scant reference to what actually causes many of them to fail: toxic cultures.  As valuation analysts, we’re more fixated on the quantitative measures of an asset management firm, like investment performance and client retention, so we often turn to actual industry participants to get the story behind the numbers.  Paul Black, CEO of WCM Investment Management, a $67 billion asset manager headquartered in Laguna Beach, California, provides great insights on the impact of culture on the viability of a money management firm.

March 22, 2024

An Ontological Approach to Investment Management

Review of “Winning at Active Management” by William W. Priest et al.

“Winning at Active Management” by Bill Priest is an important book for managing a successful investment management practice. Emphasizing the importance of corporate culture, Priest argues against traditional command-and-control structures, highlighting that knowledge-based businesses like investment management thrive on intellectual contributions from all levels of the organization. The book provides a fresh perspective on the role of culture in mergers and acquisitions within the investment management sector, preaching that cultural compatibility is crucial for the success of such transactions.

March 8, 2024 Wealth Management

Employee Alignment Is Essential in Wealth Management

Employee alignment is crucial in asset and wealth management due to the industry’s reliance on human capital. Creating alignment between employees and shareholders is essential for the growth and success of these firms, particularly for firms with non-employee ownership. Effective compensation models and incentive programs can align interests, supporting the long-term growth and success of the enterprise.

March 1, 2024

Capital Budgeting for Team Building

Tools for Long-Term Greedy Practice Management

The recent cancellation of Apple’s decade-long “Apple Car” project underscores the opportunities that capital budgeting offers for strategic decision making. Capital budgeting is a modeling exercise that has applications in the RIA community as well, where resource allocation decisions are more likely to involve human capital as opposed to equipment. This week, we explore the concept of returns to labor versus returns to capital in investment management, illustrating how long-term strategic thinking about human capital can lead to significant returns using the same tools integral to decision making at industrial concerns.

December 15, 2023 Transactions

7 Considerations for Your RIA’s Buy-Sell Agreement

Working on your RIA’s buy-sell agreement may seem like a distraction, 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 our seven considerations for your RIA’s buy-sell agreement.

November 17, 2023 Margins and Compensation

Evaluating Your Firm’s Margin

An RIA’s margin is a simple, easily observable figure that condenses a range of underlying considerations about a firm that are more difficult to measure.  As much as a single metric can, margins reflect the health of a firm—indicating whether a firm has the right people in the right roles, whether it’s charging enough for services, whether it has enough (but not too much) overhead, and much more.  But when assessing your firm’s margins, it’s important to consider the context of the firm’s ownership and compensation structure and also the tradeoffs associated with margins that are too high or too low.

November 9, 2023

Speed, Velocity, and Momentum

The Best Measure of RIA Success

Market performance gives you speed.  Employee performance gives you velocity.  Practice management gives you momentum.  If you want to be successful, focus on building momentum.

September 22, 2023 Margins and Compensation Transactions Trust Companies

5 Takeaways from the Association of Trust Organizations’ (ATO) 2023 Annual Meeting

During ATO’s annual meeting in New Orleans, industry experts weighed in on pressing topics for independent trust companies. Key discussions revolved around the limited impact of the FTC’s proposed ban on non-compete agreements, the potential advantages of AI in trust administration, and the unique financial trends and risks observed in the TrustCo sector. For those in the trust industry seeking insights on its current state, this conference provided invaluable perspectives and recommendations.

August 24, 2023

Unpacking Your RIA’s Income Statement

Performance Measurement Is More than Profits and Losses

Measuring the financial performance of an RIA usually starts with GAAP statements, but it shouldn’t end there. Generally Accepted Accounting Principles (GAAP) have their place, but are too vague and nonspecific to provide much in the way of strategic direction for an investment management business. In this post, we propose a path to break down your financials into key performance metrics, giving your leadership a more constructive way to think about what builds value in an RIA.

August 18, 2023

Succession Planning: RIAs Have Options

The RIA industry is facing a potential succession crisis, with many firms still helmed by their founders and lacking in non-founding shareholders. Although succession planning is vital for the long-term success of these firms, it is often sidelined in favor of immediate growth strategies. This article delves into various solutions for RIA principals, from internal transitions to external acquisitions, highlighting their benefits and potential drawbacks.

August 11, 2023 Asset Management Margins and Compensation

A Little Less Conversation, A Little More Compensation

Compensation Structures for Investment Management Firms Whitepaper

Labor is the single largest expense for any investment management firm, but beyond that simple fact, there is surprisingly little similarity regarding how the thousands of wealth managers, asset managers, independent trust companies, and investment consulting firms pay their people.  Compensation studies show considerable variances in how much firms pay for certain positions, and the character of remuneration — salary, bonuses, equity compensation, benefits — varies as a function of firm history, economics, and culture.

June 22, 2023 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.