RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

Current Events

Will Goldman Sachs Pay 18x EBITDA for Your RIA?

No. But Goldman’s United Capital Buy Suggests the Consolidation Winds are Shifting

If there is one consistent story in these RIA rollups, it’s that building them takes longer than anybody expects.  Duran worked on building United Capital for nearly 15 years.  Some things require scale that cannot be acquired in one lifetime, however, and that’s where the CEO of Goldman Sachs, David Solomon, saw an opportunity.

Call Reports

Q1 2019 Call Reports

RIAs Respond to the Changing Industry Landscape with Varied Measures

During Q1 2019, most classes of RIA stocks underperformed the market despite its relatively sharp increase through the first three months. Investors still seemed concerned about the RIA industry’s prospects in the face of fee compression and continued asset outflows.  RIAs are responding to this pressure in different ways.  Some are actively expanding product offerings to meet clients’ changing demands; others are staying true to the traditional RIA model and responding to revenue pressure by developing cost efficiencies. As we do every quarter, we take a look at some of the earnings commentary of investment management pacesetters to gain further insight into the challenges and opportunities developing in the industry.

Industry Trends Transactions

Ignoring the Obvious: What the Market isn’t Telling us About RIA Valuations

Over the weekend, the Financial Times published an article touting the rising level of merger and acquisition activity in the U.S. wealth management industry.  The piece echoed much of the typical commentary on the RIA industry’s prospects for deal activity: a large, profitable, but fragmented community of firms needing scale to develop the necessary technology infrastructure and serve sophisticated client needs.  The article talked to leaders in several PE-backed consolidators and some M&A specialists in the space, all of whom talked their book in general agreement that valuations were strong and consolidation was on.  What the article didn’t address is that while private equity has indeed been actively pursuing the investment management industry, the public markets seem to have lost interest.

Asset Management Industry Trends

RIAs Still Reeling from Last Year’s Sell-Off

Despite Recent Uptick, Investment Managers are Underperforming

Ordinarily, we’d expect investment manager stocks to outperform the S&P in a stock market rally.  This isn’t always the case though.  So far this year, most classes of RIA stocks have underperformed the market despite its relatively sharp increase through the first three months. The explanation isn’t necessarily obvious. 


Q1 2019 Asset Manager M&A Trends

On the Heels of a Record Year, Will Asset Manager M&A Trends Continue to be Strong in 2019?

Several trends which have driven the uptick in sector M&A in recent years have continued into 2019, including increasing activity by RIA aggregators and rising cost pressures.  Total deal count during the first quarter of 2019 was flat compared to the same period in 2018, while deal count was up 35% for the twelve months ending March 31, 2019, compared to the comparative period ending March 31, 2018.  Reported deal value during the first quarter of 2019 was down significantly, although the quarterly data tends to be lumpy and many deals have undisclosed pricing. 

Asset Management

Valuations of Asset Managers Are Slow to Recover

Is the Decline in Active Management a Result of Increased Competition or Mediocre Performance?

While market declines are a threat to the profitability and valuations of any asset management firm, active managers face the additional threat of relative underperformance driving outflows, even in periods of rising markets. Low fee passive strategies have become increasingly popular due in part to both the perceived underperformance of active managers and an increasing focus on fees. But to what extent have active fund outflows been driven by mediocre performance versus competition from passive strategies, and what is the impact on asset management firm valuations?

Wealth Management

2019 CFA Institute Wealth Management Conference Recap

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.

Practice Management

Buy-Sell Agreements for Investment Management Firms

An Ounce of Prevention is Worth a Pound of Cure

As difficult it is to imagine a valuable car such as the Ferrari 250GT SWB 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.

Asset Management

Mercer Capital provides RIAs, trust companies, and investment consultants with corporate valuation, litigation support, transaction advisory, and related services