Key Takeaways
Waiting to sell an RIA can improve outcomes if firm growth, transaction multiples, financing markets, and buyer demand remain favorable, but those assumptions depend on several conditions continuing simultaneously.
Many RIA owners are more comfortable with the familiar risks of continued ownership than with the uncertainty of life after a transaction, even when current market conditions may be more fragile than they appear.
Succession planning does not require an all-or-nothing decision; internal transfers, minority recapitalizations, and phased liquidity strategies can provide flexibility while reducing timing risk.
Many RIA owners delay selling because current conditions feel stable and the future feels uncertain. The risks may not be as balanced as they appear.
In the late 1970s, Porsche introduced the 930 Turbo, the company’s first turbocharged 911. It was spectacularly fast for its time, but soon developed a reputation that bordered on menace. Drivers who grew up around modern performance cars with antilock brakes and electronic stability control sometimes struggle to understand what made the early 930s so intimidating. On paper, the car wasn’t especially powerful by current standards. The problem was the turbocharger.
Early turbocharged engines suffered from a power lag caused by the time it took for the turbo to spool up. For a moment, nothing much happened. Then the boost arrived all at once, sometimes in the middle of a turn and often at precisely the wrong time. If the driver lifted off the throttle abruptly or overcorrected, the rear-engine dynamics of the 911 could take over in a hurry. The resulting sudden loss of rear tire traction (called snap oversteer) earned the 930 its famous nickname: the “widowmaker.”
The danger wasn’t obvious in ordinary driving. Around town, the car felt manageable, even civilized. Drivers got comfortable until they pushed the car too hard at the wrong time. Then conditions became very uncomfortable.
We’ve recently spoken with many RIA owners who are considering selling their firms but think they may want to wait a few more years. Sometimes the rationale is straightforward enough. Perhaps the firm is growing nicely and another few years of profitable expansion could materially improve value. Maybe leadership wants a little more time with the income stream before monetizing. Others are waiting for interest rates to settle down or for political and economic uncertainty to clear. Waiting may prove to be the right decision.
If a firm continues to grow profitably, if transaction multiples remain elevated, if financing markets stay healthy, if buyers remain enthusiastic about the RIA sector, and if the selling shareholders remain healthy and engaged enough to participate in earnout periods, future proceeds may very well exceed what is available today, even after adjusting for the time value of money.
That’s a lot of “ifs,” though.
One of the more interesting aspects of succession planning (internal or external) is how differently owners tend to evaluate the risks of selling versus the risks of continuing to own the business. Many seem remarkably comfortable underwriting the risks they already carry while remaining deeply uncomfortable with uncertainties they merely imagine.
We get it. The current business feels tangible. Familiar. The clients are known. The employees are known. The routine is established. Owners know where the revenue comes from, how the firm reacts in volatile markets, which clients need reassurance during downturns, and which employees quietly hold the place together. After enough years, all of that starts to feel stable in a way that may or may not be deserved.
The future after a sale is harder to picture. What will life look like without the business? Will an acquiring firm preserve the culture? How will clients react? Will the seller remain relevant after closing? For founders who have spent decades building an RIA, these are non-trivial questions. The business is often intertwined with identity, relationships, intellectual engagement, and daily structure.
In our experience, owners usually spend more time worrying about those unknowns than about the possibility that current conditions could change materially before they ever get to market.
Markets decline. Key employees leave. Health issues emerge. Financing becomes more expensive. Buyer enthusiasm cools. Regulators get interested in new things. Private equity firms that once seemed eager to buy every RIA in sight suddenly become more selective when capital gets tighter or portfolio performance weakens.
Most transaction markets do not deteriorate gradually. Windows tend to stay open longer than expected and then narrow surprisingly fast.
None of this should be read to imply that every owner should sell now. Far from it. Some firms have years of strong growth ahead of them, excellent internal succession prospects, and leadership teams that remain energized by the business. Others simply enjoy the work and have no desire to transition ownership any time soon. This is not entirely a financial decision, nor should it be.
Still, owners sometimes frame the choice too narrowly, as though the alternatives are limited to selling everything immediately or holding everything indefinitely. In practice, there are lots of ways to reduce timing risk. Some firms gradually transfer ownership internally over long periods of time. Others complete minority recapitalizations while maintaining operating control. Some sellers roll significant equity into the acquiring platform and continue participating in future upside.
Those approaches may not maximize value in every circumstance. They may, however, produce something else owners often overlook when evaluating succession decisions: flexibility.
The old 930 Turbo became easier to drive as Porsche improved the suspension, tires, turbocharging, and electronics. The early cars never changed their reputation, though. Drivers still respected and feared them because the consequences of bad timing would bite.
RIA ownership carries its own version of timing risk. The challenge is not simply deciding whether to sell now or later. It’s being honest about how much confidence today’s conditions actually deserve.
About Mercer Capital
Mercer Capital is a valuation and advisory firm organized according to industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to asset managers, wealth managers, independent trust companies, broker-dealers, and alternative asset managers.