A weekly update on issues important to the Investment Management industry
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.”
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
One refrain we often hear from clients is how different they are from other investment management firms. We agree. Asset managers have a lot in common, but we see a huge variety of personalities, investment approaches, business plans, marketing activities, compensation models, etc. In short, every firm has a unique culture, just like families.
A question that we don’t hear enough RIAs asking themselves: what makes our best customer? The conventional wisdom we’ve gathered from talking with a wide variety of investment management firms over the years is that high net worth relationships make the best clients for RIAs. Relationships with individuals are supposed to be stickier than, say, institutional relationships where investment committees drop managers the moment their three-year performance lags the index. However, is it that simple?
After years of working with investment management firms of all shapes and sizes, it is our opinion that building the most value in an RIA comes down to the same thing: developing and capitalizing on some unfair advantage. That may sound unnecessarily mysterious or metaphorical, but it really boils down to examining the basic building blocks of firm architecture and finding out where your firm can excel like none other.
A persistent truth about investment management is that no analyst ever saw a piece of information he or she didn’t want. Professional investors are, by their very nature, research hounds – digging deep into a prospective investment’s operating model, financials, competitive landscape, management biographies, and whatever else might be relevant to try to evaluate the relative merit of buying into one idea instead of another. This same diligence doesn’t always extend to practice management, though, and we are not infrequently surprised at how little attention management teams at RIAs devote to studying their own companies.
Clients writing new buy-sell agreements or re-writing existing ones frequently ask us how often they should have their RIA valued. Like most things in life, it depends. We usually recommend having a firm valued annually, and most of our clients usually do just that. “Usually,” though, is subject to many specific considerations.
Hardly a week goes by that we don’t get asked what we think are optimal qualities of an RIA merger partner. Answering that always feels a little like giving dating advice: different partners suit different partners. No one disputes that the industry is ripe for consolidation, but there’s no easy way to “swipe-right” on a target company’s ADV, and it’s pretty unlikely that sec.gov is going to have its own version of Tinder anytime soon. Nevertheless, in honor of today’s holiday, here are a few thoughts on what to think about when considering a merger partner.
As difficult it is to imagine a valuable car such as the Ferrari 250GT SWB that we feature in this post 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; call us if you have any questions.
By now you’ve probably read the SEC’s proposed rules on Adviser Business Continuity and Transition Plans. Most of the proposed rule simply codifies a reasonable standard for practice management at an RIA. Certain of the proposal’s requirements, such as IT management and being able to conduct business and communicate with staff and clients in the event of a natural disaster, are likely to be met with turn-key solutions from vendors. Of more interest is how the requirement for a “transition plan” in the event of the death or incapacitation of an advisory firm owner will be implemented.
In an industry characterized by constant pressure to adapt to market conditions and offer highly specialized client service, many financial advisors still spend a significant portion of their time acquiring new clients rather than collaborating with other professionals. According to Philip Palaveev in his recent book The Ensemble Practice, the majority of financial advisory practices still function as “solos,” or one individual against the entire market. This practice is inherently problematic in its lack of sustainability and the problems it poses for an owner who desires to leave a legacy post-retirement.
The closest we get to detective work at Mercer Capital is when we’re jointly retained to resolve a shareholder disagreement over a buy-out. Whether we’ve been court-appointed or mutually chosen by the parties to do the project, we’ve done enough of these over the years to learn that the process matters as much as the outcome. In this post, we discuss our process for handling such engagements.
