Category

Practice Management

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April 1, 2019

Buy-Sell Agreements for Investment Management Firms

An Ounce of Prevention is Worth a Pound of Cure

As difficult it is to imagine a valuable car such as the Ferrari 250GT SWB being forgotten, what we see more commonly are forgotten buy-sell agreements, collecting dust in desk drawers. Unfortunately, these contracts often turn into liabilities, instead of assets, once they are exhumed, as the words on the page frequently commit the signatories to obligations long forgotten. So we encourage our clients to review their buy-sell agreements regularly, and have compiled some of our observations about how to do so in the whitepaper. We hope this will be helpful to you.

January 29, 2019

Five Questions to Ask Your P&L

A Great Start to 2019 is a Thorough Lookback at 2018

Now that January is almost over, we know that many of you have wrapped up quarterly investor communications and can now take a moment to think about your firm’s operations, direction, and other practice management issues. A useful place to begin your plan for 2019 is doing some fundamental research on your own business, starting with the P&L.

November 12, 2018

What is Your Firm’s “Brand” Worth?

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

The announcement from Merrill Lynch last week that they were cutting advisor compensation stood in stark contrast to a lawsuit filed in October by former Wells Fargo brokers, alleging that their practices had been impaired by association with the bank. While Merrill feels comfortable flexing their brand muscles by redirecting advisor cash flow back to the firm, Wells Fargo is accused of actually having negative brand value. These two situations highlight the dynamic interaction between investment management professionals and the firms they work for while demonstrating the significance of branding to build professional careers and advisory firm value.

October 2, 2018

It’s Not Just Elon: Founder’s Syndrome Depresses the Value of RIAs as Well

Like all founder-led companies, RIAs can benefit from the entrepreneurial zeal of the men and women who started them.  Unfortunately, that same appetite for risk-taking can lead to reckless behavior, and the identification of a founder with a namesake enterprise can complicate succession planning.  In any event, the risk associated with a founder-led RIA can lead to extreme results: taking advantage of a moon-shot opportunity, or a business that’s lost in space.

September 24, 2018 Transactions

The Role of Earn-outs in Asset Management M&A

Despite the relatively high level of financial sophistication among RIA buyers and sellers, and broad knowledge that substantial portions of value transacted depends on rewarding post-closing performance, contingent consideration remains a mystery to many industry M&A participants. Yet understanding earn-outs and the role they play in RIA deals is fundamental to understanding the value of these businesses, as well as how to represent oneself as a buyer or seller in a transaction. We offer this whitepaper to explore the basic economics of contingent consideration and the role it plays in negotiating RIA transactions.

September 17, 2018 Margins and Compensation

Staffing for Value

With last week’s release of the 2018 InvestmentNews Compensation & Staffing Study, trends in pay and performance expectations are making the rounds in the RIA community.  Even though we are a valuation firm, we are often asked to weigh in on compensation matters, as officer pay and firm value are typically intertwined. 

August 27, 2018

Why Scale Doesn’t Always Resolve Succession Issues

Recent challenges at Och-Ziff and Hightower highlight the struggles RIAs face in transitioning the business to the next generation of management.  Size doesn’t alleviate this problem and may actually exacerbate it for some asset managers.  In this week’s post, we explore what went wrong in these instances and what you can do to avoid a similar fate.do to avoid a similar fate.

June 25, 2018

Thinking About Going Exclusive?

Five Considerations for RIA/BD Hybrids Looking to Drop Their BD Status

With the Advisor Rule looming and commissions dwindling, it may be time for some RIA/BD hybrids to take it to the next level: drop the broker-dealer license and register exclusively with the SEC as an investment advisor.  This week’s post focuses on what’s driving the downward trend in BD-only registrants and when it makes sense to abandon the hybrid model.

June 19, 2018

Five Things RIA Owners Can Do to Turn Success into Momentum

While the fundamentals of your firm may appear to deteriorate during bear markets, the fundamentals of the industry will continue to drive success for a long time. Today, the fundamentals of your firm are probably the best they’ve ever been. That’s why this is the perfect time to consider your formula for success, prepare for the next downturn, and build the competitive momentum you’ll need to ride the industry trends to greater success in the future.

February 23, 2018 Current Events

The Tax Bill Rendered Your Shareholder Agreement Obsolete

The Tax Cuts and Jobs Act has really shaken up the underlying economics of investment management firms and, with that, the value of those firms. As a consequence, many owners of RIAs have inaccurate ideas of what their firms are worth, and, worse than that, they have outmoded shareholder agreements suggesting the willingness to transact at inaccurate valuations.

February 12, 2018 Current Events

What RIA Owners Need to Know About the New Tax Law

For this week’s post, we’re offering the slides and recording from our recent webinar on the tax bill’s impact on the investment management community.  On balance, we believe most RIAs are better off as a consequence of the legislation, but there are nuances to the “win.”

January 29, 2018 Current Events

Are RIAs Worth More Under the New Tax Bill?

Absolutely (Well…Probably)

The tax bill is bullish for the RIA community. Focused on the implications of the tax bill for investment management firm valuations, there’s much to consider as discussed in this week’s post.

December 18, 2017 Transactions

Valuing an Offer for Your RIA

The Devil’s in the Details

In this final blogpost on evaluating unsolicited offers for your RIA, we take on this issue of valuing an offer.  Valuing the offer for your RIA can be more difficult than valuing the firm itself.

December 11, 2017 Industry Trends Transactions

Should RIAs Care About Broker Protocol?

As noted last week, much has been written about some of the major wirehouse firms abandoning protocol these last few months.  This week we explore what the implications are for RIAs and how it could impact their value in the marketplace.

November 27, 2017 Transactions

Culture is King, So Why Isn’t It Mentioned in the Purchase Agreement?

This fourth post in a series on selling your RIA focuses on corporate culture, the single most defining element of investment management firms.  RIAs are more than EBITDA margins and GIPS compliant performance numbers.  Ironic, isn’t it, that culture is rarely negotiated and never mentioned in a purchase agreement?

November 13, 2017 Transactions

Coping With Deal Fatigue?

Keep Your Eyes on the Prize

If you’re entering into negotiations to sell your RIA, buckle up, stay composed, be mindful of your goals, and don’t catch deal fatigue.

November 6, 2017 Transactions

Unsolicited Offers for Your RIA

Is the First Bid the Best?

The primary danger of an unsolicited offer is that it lures potential sellers into thinking the deal is done and the process will be easy.  As with most things in life, if something looks too good to be true, it usually is.

October 30, 2017 Transactions

Congratulations! Someone Wants to Buy Your RIA. Now What?

We’ve been asked to review unsolicited offers to buy an asset management firms many times.  As such, we thought it would be worth taking a few blog posts to talk about unsolicited offers, how to approach them, evaluate them, and decide whether to pursue or reject them.

September 25, 2017 Industry Trends

Additional Considerations for Leaving a Wirehouse or Brokerage Firm

Piggybacking off of our post from last week, we discuss the various options one faces when leaving a wirehouse firm, including the various pros and cons to doing so.  The advisory profession has evolved significantly over time, so we’re writing this post to keep you apprised of your options as you consider the big leap.

September 11, 2017 Transactions

What Is My RIA Worth?

Of all the topics we cover in RIA Valuation Insights, the most popular concerns what an investment management firm is actually worth.  As a consequence, we thought it would be worthwhile to offer a webinar on the topic, and are planning to do so on Tuesday, October 3. 

August 28, 2017 Transactions

An Example of Structuring Earn-outs for RIAs

If you’re considering an offer for your firm that includes earn-out consideration, think about having some independent analysis done on the offer to see what it might ultimately be worth to you. If you’re working the buy-side, prepare to spend lots of time fine-tuning the earn-out agreement—you won’t get credit if things go well for the seller, but you will get blamed if it doesn’t.

August 21, 2017 Transactions

Five Considerations for Structuring Earn-Outs in RIA Transactions

We continue the discussion of earn-outs in the RIA industry. While there is no one set of rules for structuring an earn-out, there are a few conceptual issues that can help anchor the negotiation. We list five in this week’s post.

August 14, 2017 Transactions

Why Earn-outs Matter in Asset Management M&A

This blog kicks off a series which we’ll ultimately condense into a whitepaper to explore and maybe demystify some of the issues surrounding earn-outs in RIA transactions. If nothing else, earn-outs make for great stories.

June 27, 2017

Will Direct Investing Give Wealth Management Firms an Unfair Advantage?

Normally, we would expect strong financial markets to validate most RIA models and at least hide the weaknesses of others. In this case, though, a rising tide isn’t lifting all the boats. Why? In this post, we pinpoint the reasons why and discuss a way forward.