RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

Current Events

Will RIAs Be Subject to Anti-Money Laundering Rules?

The Financial Crimes Enforcement Network (FinCEN) is proposing a rule that would require investment advisors to comply with Bank Secrecy Act requirements, including implementing anti-money laundering controls and filing suspicious activity reports. Unlike previous attempts, this proposal does not hold investment advisors accountable for identifying their clients, but FinCEN is considering a separate proposal with the SEC for future customer ID requirements. With an increased push from regulators and illicit actors’ growing utilization of RIA intermediaries for AML purposes, the investment advisory sector may soon face stricter regulations, particularly regarding customer identification.


Reconciling Real-World RIA Transactions with Fair Market Value

When RIA owners think about their firm’s value, they frequently think in terms of the dollar value they believe they could sell the business for in an arm’s-length transaction. However, the nuances of real-world transaction terms in the investment management industry can often obscure what’s being paid for the business on a cash-equivalent basis. The details of transaction pricing—things like contingent consideration structures and thresholds— rarely make it into the trade press or RIA rumor mill, adding to the confusion. In this blog post, we explore various transaction structures employed in the industry and their relationship to fair market value.


RIA M&A: What Can Possibly Go Wrong?

A Very Incomplete List of What Not to Do in Transactions

In the RIA community, nothing gets people’s blood flowing like a transaction. Big mergers are fantastic, but even deals involving a few hundred million of AUM are widely reported. For all the hype, making M&A successful requires minding Ps and Qs, and is as much, if not more, about attention to detail and being realistic as it is about sweeping vision and uplifting pronouncements.

Industry Trends Wealth Management

Will Finfluencers Replace Financial Advisors?

The CFA Institute Research & Policy Center’s recent report reveals the significant influence of financial influencers (finfluencers) on the investment decisions of Gen-Z, underscoring the urgent need for the wealth management industry to adapt to the digital age. Highlighting a concerning gap, the report notes that a substantial portion of finfluencer content lacks necessary disclosures, potentially leading young investors to make decisions based on biased information.

Despite the challenges posed by finfluencers, the report suggests they offer a unique opportunity for RIAs to engage with the next generation of investors, advocating for strategic partnerships complemented by rigorous compliance and transparency measures. Read the details in this week’s post.

Current Events Industry Trends Transactions

Quality of Earnings Analysis for RIAs

The M&A space in the RIA sector has seen a marked increase in transaction activity over the past ten years, along with advancements in its supporting infrastructure. Professionalization of the buyer market has led to a more detailed examination of target companies’ earnings. Mercer Capital’s whitepaper highlights the importance of Quality of Earnings (QofE) analysis in presenting a more accurate picture of a company’s earnings and cash flows for both potential buyers and sellers.

Current Events Industry Trends

Navigating the Shifting Tides

Trends Shaping the RIA Industry in 2023 and Beyond

In 2023, the RIA industry witnessed growth and rebounded from the previous year’s slump, despite earlier concerns about inflation and high interest rates. This growth occurred alongside a shift in the financial landscape, where public firms in wealth management underperformed compared to the broader market and alternative asset managers. Additionally, RIAs have found the importance of data use, with many advisors using data to enhance portfolio decisions, operational efficiencies, and client relationships.

Industry Trends

The Remarkable Resilience of RIA M&A Activity

Despite challenging macroeconomic conditions in 2023, RIA M&A activity demonstrated resilience, with Fidelity’s November 2023 report showing a 3% increase in deals compared to 2022. The total transacted AUM saw a notable 25% increase, with an average AUM per transaction rising by 21%. Factors contributing to this growth included consolidation forces in the industry, confidence in the macroeconomic environment, and significant investments by firms such as Mercer Advisors and CAPTRUST, as well as partnerships with private equity firms.

Industry Trends

RIAs Finish 2023 with a Q4 Rally

Investor Interest Moves to Alts and Big-Name Managers

In Q4 2023, most publicly traded asset and wealth management firms saw share prices rise, with alternative asset managers seeing 21% growth, outperforming the S&P 500. Despite market growth, there was a decline in year-over-year revenue for most RIA sectors, attributable to fee compression. This report also highlights that larger RIAs (with AUM over $100 billion) generally outperformed the S&P 500, while smaller RIAs (with AUM under $10 billion) underperformed.

Industry Trends Insights

‘Twas the Blog before Christmas….

The 2023 Mercer Capital RIA Holiday Poem

It has become a tradition for the RIA team at Mercer Capital to end the blog year with a “unique” annual summary of industry events, riffing off Clement Clark Moore’s classic “A Visit from St. Nicholas.”  We hope all of you in the investment management community are enjoying the holiday season and looking forward to the many opportunities of the new year.  We look forward to hearing from you in 2024.  For now, please enjoy the finest only holiday poem written about money management.

Practice Management Transactions

7 Considerations for Your RIA’s Buy-Sell Agreement

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, employees, and clients.  If you haven’t looked at your RIA’s buy-sell agreement in a while, we recommend dusting it off and reading our seven considerations for your RIA’s buy-sell agreement.

Investment Management

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