RIAs are Taking Advantage of this Time to Revisit Shareholder Agreements
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.
Creative Planning’s Minority Sale is the Most Consequential RIA Deal So Far in 2020
It’s hard to imagine, but the most significant piece of news for the RIA community so far this year happened less than three weeks ago and is already almost forgotten: Peter Mallouk sold a minority stake in his firm, Creative Planning, to private equity firm General Atlantic. The transaction is easily one of the largest, if not the largest, minority transaction in the history of the RIA industry, and potentially provides a blueprint for others to follow.
Drivers of Valuation in Wealth Management M&A
Fidelity recently published a study on M&A activity in the wealth management industry highlighting sellers’ ambitious expectations of the value of their firms Fidelity’s conclusion: sellers of investment management firms often “don’t entirely understand what drives valuation.” In this post we hope to provide insight to the owners of wealth management firms on how likely buyers value their firm.
How the Wealth Management Industry has Transformed Over the Last Decade
As we enter the new decade, rather than taking time for self-reflection, we prefer to take a step back and reflect on the radical transformation of the wealth management industry over the last ten years. Wealth managers have been forced to adapt in order to maintain their client base and remain profitable, and while these changes have not been easy, they have transformed the industry into one that is more focused on its clients’ needs and better regulated to ensure the safety of its clients’ assets.
SchwabiTrade isn’t the Only Threat to the Most Consistent Profit Stream in the RIA Community
It’s hard to see the advent of SchwabiTrade as a good thing for the RIA community – especially the wealth management community. If Schwab is looking to recapture margins from zero commission trading and low rates on sweep accounts, it need look no further than the ten thousand plus RIAs now in its eco-system.
The Best Business Model in the RIA Industry Depends Not on Who You Ask, but Who’s Asking
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.
Fidelity’s Partnership with Merchant Investment Management
On June 10th, Fidelity Clearing & Custody Solutions and Merchant Investment Management announced a new partnership to increase wealth managers’ access to capital for acquisitions and growth initiates. The deal opens up a sizable new sales channel for Merchant, and in return, Fidelity’s behemoth platform tacks on a few additional selling points to entice M&A-minded RIAs.
Last week, Matt Crow, Brooks Hamner, Taryn Burgess, and Zach Milam attended the 2019 CFA Institute Wealth Management Conference in Fort Lauderdale. We didn’t get a total headcount, but attendance appeared to be up from last year’s event. There are probably a number of explanations for this, but perhaps the most plausible was the interest in this year’s focus on the psychological side of wealth management, which explored behavioral finance tendencies and how emotional decision-making can impact investment performance. For this post, we’ve elected to summarize some of these presentations and their implications for financial advisors.
CFA Institute Wealth Management 2019 happens April 1-3 in Fort Lauderdale. The Investment Management Industry team of Mercer Capital will be there.
Investment management is a younger profession than many, but it too has evolved and is evolving, into an industry of sub-specialties of manufacturing (asset management) and distribution (wealth management). Wealth management is in a dynamic period, with changing client service models, challenges to profitability, the augmentation and distraction of technology, consolidation in some ways and fragmentation in others.
Recognizing this, we thought it would be useful to put together a whitepaper on valuation issues that are unique to the wealth management industry. While there are certainly characteristics of wealth management firms that are common to all RIAs, there are enough distinctions to caution anyone from painting the profession with too broad a brush.
The market approach is a general way of determining the value of a business which utilizes observed market multiples applied to the subject company’s performance metrics to determine an indication of value. The “market” in market approach can refer to either public or private markets, and in some cases the market for the subject company’s own stock if there have been prior arms’ length transactions. The idea behind the market approach is simple: similar assets should trade at similar multiples (the caveat being that determining what is similar is often not so simple). The market approach is often informative when determining the value of a wealth management firm.
There are three general approaches to determining the value of a business: the asset-based approach, the income approach, and the market approach. The three approaches refer to different bases upon which value may be measured, each of which may be relevant to determining the final value. Ultimately, the concluded valuation will reflect consideration of one or more of these approaches (and perhaps several underlying methods) based on those most indicative of value for the subject interest. This week, we take a look at how the income approach is used to value wealth management firms.
A Closer Look at a Business that Continues to Pivot with Client Needs
Wealth management firms have significantly evolved over the last several decades for various reasons. For purposes of this post, we provide a bit of history on the industry, basic characteristics of today’s wealth management firm, and take a look at recent performance.
Much of the sector’s recent press has focused on the current market environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.
Management Claims Their Model is Recession Proof; Unfortunately, it isn’t Analyst Proof.
Last week was turbulent for equities around the globe, but Focus Financial (Nasdaq: FOCS) was hit particularly hard. Less than five months since IPO, Focus closed Friday at $27.45, decidedly below where the offering priced at $33, and not much more than half the share price achieved less than three months ago.
A Review of The Gen-Savvy Financial Advisor by Cam Marston
Generational differences were prominent as I spent time with my grandparents, parents, and cousins over the Thanksgiving Holiday. But why and how should Financial Advisors take note of these differences as they market and structure their services to meet the needs of different age groups?
Despite the old maxim of a rising tide lifting all boats, the current markets are clearly more buoyant for wealth management firms than asset management firms. Many asset managers are trading at or near all-time lows from a valuation perspective, while financial advisory shops continue to accumulate client assets. For this week’s post, we’ll take a closer look at this trend, and what it means for the broader industry.
The investment management industry is characterized by scores of independent firms who have found success in idiosyncrasy, providing clients a limitless variety of paths and approaches to common investment dilemmas. Some would suggest that this is the source of the industry’s strength, but not everyone agrees, as evidenced by the Focus Financial IPO two weeks ago.
Now that Focus is public, we have a new channel with which to study and benchmark the industry. We have lots of questions, but for this post we’ll just look at the implications of the Focus valuation that is consequent from the IPO.
Wealth management firms have fared well in recent years on the back of rising markets, but the underlying drivers suggest an industry in flux; global investible assets are at all time highs, intergenerational wealth transfer is accelerating, and FinTech products are poised to disrupt. Yet, many analysts are skeptical about the industry’s prospects. Rising global wealth means that there are more assets for wealth managers to manage, and intergenerational wealth transfer means that there are also more opportunities to gain (and lose) clients. FinTech products threaten competition, but also offer efficiencies for agile firms. Depending on your point of view, the industry is either poised to grow or on the verge of massive disruption.