Happy New Year to all our readers and subscribers!  Here are the five most popular posts from 2018.

1. S Corp RIAs Disadvantaged by the Tax Bill: New but Unimproved

For this post, Matt Crow likens Ford’s lackluster revamp of its Mustang model to the tax bill’s impact on RIA S corps.  As with the Mustang II, the Tax Cuts and Jobs Act took a good thing and made it not so good for certain pass through entities by effectively reducing the tax advantage that S corps have over C corporations, especially for non-distributing firms.  The TCJA also excluded investment management firms from the QBI deduction beyond a certain income limit.  While the tax bill’s reduction on C corp rates was generally beneficial to market returns and AUM balances, it did not necessarily enhance the tax efficiency of S corp RIAs as many industry participants had hoped.

2. Summer Reading for the RIA Community – Focus Financial’s IPO

This pre-IPO post emphasized many of the concerns we had on Focus’s valuation that investors seem to be grappling with now.  Specifically, heavy (and controversial) adjustments to reported earnings, continuing net income losses, “organic growth” questions, and the recent market downturn are all weighing on FOCS, which has lost nearly half its value since September.  We’ll keep an eye on this one for its broader implications on RIA aggregators in the wealth management space.

3. The Role of Earn-outs in Asset Management M&A

This post is really just a link to our whitepaper on the topic since there’s frankly too much to write about in the blog format.  Despite the relatively high level of sophistication among RIA buyers and sellers, contingent consideration remains a mystery to many industry participants.  We offer this whitepaper to explore the basic economics of earn-outs and the role they play in negotiating RIA transactions.

4. The Haves and Have-Nots of the RIA Industry

This post explores why wealth managers have recently outperformed their asset manager peers and what this means for the broader industry moving forward.  Fee compression and the rise of passive management have seemingly benefited wealth management firms to the detriment of asset managers in recent years.   Volatility over the last few months has likely exacerbated this trend for many active managers, though some mean reversion may be long overdue.

5. Asset Manager M&A Activity Accelerates in 2018

Zach Milam discusses continuing gains in asset manager M&A despite the industry’s recent headwinds.  RIA aggregators, a rising cost structure, and highly scalable business models are all culprits to yet another banner year for sector dealmaking.  It will be interesting to see how the recent downturn will affect this trend in 2019, which we’ll also be blogging about in the coming months.