A weekly update on issues important to the Investment Management industry
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.
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.
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.
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?
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.
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.
This week we discuss why RIA management teams need to look a step or two beneath the surface to understand why their firm is growing.
As a financial analyst, a CFA charter holder, and a generally reasonable person, I know that Zillow isn’t accurate; but as a homeowner, I can’t help myself. When I am walking around my neighborhood, I always have the Zillow App open, and am speculating about how the “Z-estimate” for my house compares to my neighbors’. And, of course, my house always is better. Why? Because I own it. It’s called the endowment effect. I (as a homeowner) am emotionally biased to believe that something (my house) is valued higher than the market would ascribe, simply because I already own it.
And you, the owner of an RIA, may believe your firm is valued higher than the market value too, and old rules of thumb and recent industry headlines amplify the problem.
We want to thank everyone who attended or participated in our inaugural RIA Practice Management Insights conference last week. We set out last year to create a conference geared towards the back-of-house issues that are critical to success, but don’t get as much attention as themes like M&A and consolidation at many conferences. To that end, we were fortunate to be able to compile a speaker list full of well-known experts on various practice management topics like firm culture, marketing, managing your tech stack, and more.
The deficiency in the growth story of many RIAs is they employed lots of people to work “in” the business, but not enough to work “on” the business. Strategic thinking about practice management is a necessity in an industry that has been catapulted into the future. This post discusses why we put together the RIA Practice Management Insights conference.
Next week, during the inaugural RIA Practice Management Insights conference, we will set aside some time to answer your questions about succession planning. We’ll cover some of these topics in more detail next week, but this post offers a preview of our thinking about various succession planning (and exit) options.
Salary and bonus discussions are some of the most stressful conversations business owners have each year, and RIA principals are no exception. Since personnel costs are by far the largest expense item on an RIA’s income statement, it is understandable that these principals frequently question (and are questioned about) their compensation decisions. While there is no one-size-fits-all formula for compensation, we have discovered three ways to ease some of the anxiety around these discussions.
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, your employees, and your 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 discussion in this post.
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.
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.
This week’s post analyzes recent RIA moves out of the Big Apple and what it could mean for your firm.
You’ll probably find that the “downtime” afforded by working remotely and traveling less is a perfect time to clean up some practice management issues, including your buy-sell agreement. So pull your shareholder agreement out and compare it to our whitepaper.
Educating your family about how your wealth and/or family business is managed is essential for the preservation of your family legacy. In this week’s post, we discuss family offices. Private investment office… Family business advisor… Single-family office… The name differs and the definition varies greatly depending on whom you ask. But the concept remains the same. Wealthy families often seek assistance to manage their accumulated wealth, organize family affairs, and preserve capital for future generations.
In this post we take a look at some of the earnings commentary from Q1 2020 call reports.
As noted in a recent post, there are many viable options for RIA principals when it comes to succession planning. One way to transition ownership while maintaining independence is to sell internally to key staff members. The most obvious roadblock when planning for internal succession is pricing. But once you establish a price, how does the next generation pay? An internal transition of ownership typically requires debt and/or seller financing as it’s unlikely that the next generation is able or willing to purchase 100% ownership in a matter of months. In this post, we consider the expanding options for RIAs seeking debt financing and the typical terms they can expect.
During Q3 2019, most classes of RIA stocks underperformed major equity markets, which are having their best year, so far at least, in more than two decades. In general, base fees for RIAs were up due to higher average AUM (driven by market growth), however, each sector experienced unique challenges. As we do every quarter, we take a look at some of the earnings commentary from investment management pacesetters to scope out the dominate trends.
Earlier this month we had the pleasure of participating in a panel discussion on the value of wealth management firms in a transaction setting for the CFA Society of New York. In conversation after the event, one of the audience members asked me what I thought was the most successful business model to follow in the wealth management space. It’s a question we hear fairly often, and I try to avoid punting on the answer and saying “it depends.” In reality, though, it does depend.
Continuing with our succession series, this week’s focus is on internal transitions. If you’ve ever wondered why there aren’t more transactions in the RIA space, it’s largely because most of these businesses ultimately transition their ownership internally to younger partners at the firm. These deals typically don’t get reported, so you probably don’t hear about most of them. Still, it’s the most common type of transaction for investment management firms and probably something that’s crossed your mind if you’re approaching retirement.
Succession is as often discussed as it is misunderstood. While many practice management issues revolve around industry expectations, regulations, client expectations, and basic economics, succession involves all of those things plus personality, culture, and skill sets. And while much has been written about succession in the RIA industry, we’ve seen plenty of topics get little, if any attention. This post is dedicated to some of the latter.
