Key Takeaways
The modern independent RIA profession largely emerged during the fifty years since America’s Bicentennial, transforming investment management from a commission-based business into one centered on fiduciary advice and entrepreneurial ownership.
Firms that endure across generations are not built by preserving yesterday’s business. Each generation of leadership must think like founders, adapting the firm to a changing industry while preserving its institutional values.
Independence is valuable because it gives owners the freedom to build and preserve the institution they envision for clients, employees, and future generations.
After a bruising first quarter, investment managers are breathing a little easier this week. The second quarter brought a welcome lift to equity markets, and client invoices going out this week should be considerably healthier than those mailed just three months ago. That makes for a much more enjoyable Independence Day weekend. It’s a cause for celebration, and a bit of reflection as well.
I was seven years old during America’s Bicentennial celebration in 1976. Like most seven-year-olds, I was more interested in fireworks than financial markets. Had someone told me that I would someday spend much of my adulthood valuing investment management firms, I wouldn’t have understood half the words in that sentence. In fact, much of the industry we take for granted today hadn’t yet been built fifty years ago.
A Fifty Year Path to Independence
On the final trading day before the Bicentennial weekend, July 2, 1976, the Dow Jones Industrial Average closed just shy of four digits at 999.84. ERISA was only two years old. Vanguard had recently launched its first index fund. Charles Schwab was just beginning to reshape the brokerage business following the elimination of fixed commissions. There were no ETFs, no 401(k) plans, no direct indexing, and very few firms that resembled today’s independent RIAs.
Most investment professionals worked for banks, trust departments, insurance companies, or wirehouses. Advice was largely commission-based. Trading was cumbersome and expensive. Information traveled slowly, and few Americans owned meaningful equity portfolios outside of employer-sponsored retirement plans.
Over the next fifty years, that world changed dramatically. Entrepreneurial advisors left traditional institutions to build boutique firms centered on fiduciary advice rather than product distribution. Technology democratized investment management capabilities that once belonged only to the largest organizations. Clients increasingly sought objective advice from professionals whose interests were aligned with their own.
The last fifty years were more than the growth of another financial services sector. They were an experiment in whether independent ownership could become a durable business model.
The answer has been an emphatic yes.
Today, thousands of independent firms manage trillions of dollars for individuals, families, institutions, foundations, and retirement plans. The independent advisory profession has become one of the great entrepreneurial success stories in American finance.
Ironically, just as the independent RIA model has matured, the industry is concurrently enduring a period of consolidation. Institutional investors, strategic acquirers, and publicly traded platforms continue assembling larger organizations. For many firms, these transactions make excellent strategic sense. For others, remaining independent is still the better path.
Building to Last
Earlier this week I spent time on the west coast with the board of a longtime client whose roots extend back to the 1960s. The firm has remained independent through three generations of ownership and leadership and is actively preparing the fourth.
One of the firm’s founders often spoke about building an organization that was “built to last,” borrowing the phrase from Jim Collins’s influential book. Sitting around the board table, it was obvious that the current leadership still embraces that aspiration. They don’t see themselves as caretakers preserving a museum piece. They see themselves as builders, responsible for leaving the institution stronger than they found it.
What struck me most wasn’t simply the firm’s longevity. It was the way the leadership talked about the firm’s culture. They viewed it as an asset every bit as valuable as client relationships, investment performance, or financial results. They saw value beyond my spreadsheets. Selling the firm might create liquidity for shareholders, but it would damage the institution they’ve spent decades building.
What Is Your Cause for Independence?
For firms that choose to remain independent, the answer is rarely valuation alone. Independence allows owners to decide who will lead the firm, who will own it, how clients will be served, how employees will become partners, and what kind of culture will define the organization. In short, independence preserves the freedom of self-determination.
In our experience, firms that remain independent over decades tend to share several characteristics.
Every generation thinks like founders. The business built in 1976 cannot simply be preserved. Markets change. Technology changes. Regulation changes. Client expectations change. Every generation inherits the firm’s history, but each must build a business suited to its own time.
Leadership development never stops. Succession is a continuous process, not a transaction. The next generation must be prepared long before the current one retires. (Related reading: Succession Conundrums: Why Sell to Insiders for Less?)
Ownership is managed strategically. Long-lived firms recognize that ownership structures evolve along with business models. The cap table deserves as much strategic attention as the investment portfolio. (See Who Should Own Your RIA?)
Financial resilience preserves optionality. Durable margins, recurring client relationships, and disciplined capital allocation provide the flexibility to remain independent through changing markets. (See What Drives RIA Value – Growth or Margin?)
Culture is treated as a strategic asset. Culture doesn’t survive by accident. It is reinforced through hiring, compensation, ownership, governance, and leadership. (See Managing Your RIA’s Priorities)
Notice that none of these characteristics has anything to do with refusing to sell. Instead, they are the characteristics of institutions.
We’ve written often about ownership, succession, valuation, strategic planning, and organizational design because these subjects are inseparable. Firms that endure don’t simply accumulate assets under management. They build organizations capable of adapting to changing circumstances while remaining true to the principles that made them successful in the first place.
The authors of the Declaration of Independence argued that people should have the freedom to govern themselves. Whether one is discussing nations or investment management firms, self-determination carries both opportunity and responsibility.
Independence does not guarantee success. Nor does it guarantee a higher valuation. What it does provide is the freedom to build the institution you believe should exist. For many of the firms we serve, that freedom remains a cause worth fighting for.
About Mercer Capital
Mercer Capital is a valuation and advisory firm organized by industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to asset managers, wealth managers, independent trust companies, broker-dealers, private equity firms, and alternative asset managers.