Despite the hiatus in M&A beginning in March of last year with the onset of COVID-19, 2020 was a strong year for RIA mergers and acquisitions and 2021 is expected to be even stronger.
A weekly update on issues important to the Investment Management industry
Despite the hiatus in M&A beginning in March of last year with the onset of COVID-19, 2020 was a strong year for RIA mergers and acquisitions and 2021 is expected to be even stronger.
The outlook for RIAs depends on a number of factors. Investor demand for a particular manager’s asset class, fee pressure, rising costs, and regulatory overhang can all impact RIA valuations to varying extents. The one commonality, though, is that RIAs are all impacted by the market. The impact of market movements varies by sector, however. On balance, the outlook for RIAs has generally improved with market conditions over the last several months. AUM has risen with the market over this time, and it’s likely that industry-wide revenue and earnings have as well. The first quarter was generally a good one for RIAs, but who knows where the rest of 2021 will take us.
Is human input in investment management a feature, or a bug? Our experience has been that human input finds unique solutions, secures and strengthens relationships, and ultimately provides clients with the best outcomes. Algorithms can be great tools, so long as their user has great skills.
Growth-style investments have outpaced their value counterparts by a considerable margin since the Financial Crisis of 2008 and 2009. Propelled by an 11-year bull market from 2009 to 2020 and additional lift to tech stocks in a work-from-home environment, growth investing dominated value-oriented equities until just a few months ago. Now, the long-running trendline appears to be rolling over.
As a financial analyst, a CFA charter holder, and a generally reasonable person, I know that Zillow isn’t accurate; but as a homeowner, I can’t help myself. When I am walking around my neighborhood, I always have the Zillow App open, and am speculating about how the “Z-estimate” for my house compares to my neighbors’. And, of course, my house always is better. Why? Because I own it. It’s called the endowment effect. I (as a homeowner) am emotionally biased to believe that something (my house) is valued higher than the market would ascribe, simply because I already own it.
And you, the owner of an RIA, may believe your firm is valued higher than the market value too, and old rules of thumb and recent industry headlines amplify the problem.
We want to thank everyone who attended or participated in our inaugural RIA Practice Management Insights conference last week. We set out last year to create a conference geared towards the back-of-house issues that are critical to success, but don’t get as much attention as themes like M&A and consolidation at many conferences. To that end, we were fortunate to be able to compile a speaker list full of well-known experts on various practice management topics like firm culture, marketing, managing your tech stack, and more.
The deficiency in the growth story of many RIAs is they employed lots of people to work “in” the business, but not enough to work “on” the business. Strategic thinking about practice management is a necessity in an industry that has been catapulted into the future. This post discusses why we put together the RIA Practice Management Insights conference.
Next week, during the inaugural RIA Practice Management Insights conference, we will set aside some time to answer your questions about succession planning. We’ll cover some of these topics in more detail next week, but this post offers a preview of our thinking about various succession planning (and exit) options.
Salary and bonus discussions are some of the most stressful conversations business owners have each year, and RIA principals are no exception. Since personnel costs are by far the largest expense item on an RIA’s income statement, it is understandable that these principals frequently question (and are questioned about) their compensation decisions. While there is no one-size-fits-all formula for compensation, we have discovered three ways to ease some of the anxiety around these discussions.
Working on your RIA’s buy-sell agreement may seem like a distraction, but the distraction is minor compared to the disputes that can occur if your agreement isn’t structured appropriately. Crafting an agreement that functions well is a relatively easy step to promote the long-term continuity of ownership of your firm, which ultimately provides the best economic opportunity for you and your partners, your employees, and your clients.
If you haven’t looked at your RIA’s buy-sell agreement in a while, we recommend dusting it off and reading it in conjunction with the discussion in this post.
