A weekly update on issues important to the Investment Management industry
The investment management industry is characterized by scores of independent firms who have found success in idiosyncrasy, providing clients a limitless variety of paths and approaches to common investment dilemmas. Some would suggest that this is the source of the industry’s strength, but not everyone agrees, as evidenced by the Focus Financial IPO two weeks ago.
Now that Focus is public, we have a new channel with which to study and benchmark the industry. We have lots of questions, but for this post we’ll just look at the implications of the Focus valuation that is consequent from the IPO.
Wealth management firms have fared well in recent years on the back of rising markets, but the underlying drivers suggest an industry in flux; global investible assets are at all time highs, intergenerational wealth transfer is accelerating, and FinTech products are poised to disrupt. Yet, many analysts are skeptical about the industry’s prospects. Rising global wealth means that there are more assets for wealth managers to manage, and intergenerational wealth transfer means that there are also more opportunities to gain (and lose) clients. FinTech products threaten competition, but also offer efficiencies for agile firms. Depending on your point of view, the industry is either poised to grow or on the verge of massive disruption.
Asset manager M&A was robust through the first two quarters of 2018 against a backdrop of volatile market conditions. Several trends which have driven the uptick in sector M&A have continued into 2018, including revenue and cost pressures, RIA aggregators, and an increasing interest from bank acquirers. We discuss further in this week’s post.
Over the last several years, asset managers have benefited from global increases in financial wealth driven by a bull market in asset prices. However, favorable trends in asset prices have masked some of the headwinds the industry faces. Against this backdrop, we take a closer look at last quarter’s market performance through the lens of sector and size.
Most of the sector’s recent press has focused on M&A trends and the SEC’s proposed advice rule, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the industry.
With the Advisor Rule looming and commissions dwindling, it may be time for some RIA/BD hybrids to take it to the next level: drop the broker-dealer license and register exclusively with the SEC as an investment advisor. This week’s post focuses on what’s driving the downward trend in BD-only registrants and when it makes sense to abandon the hybrid model.
While the fundamentals of your firm may appear to deteriorate during bear markets, the fundamentals of the industry will continue to drive success for a long time. Today, the fundamentals of your firm are probably the best they’ve ever been. That’s why this is the perfect time to consider your formula for success, prepare for the next downturn, and build the competitive momentum you’ll need to ride the industry trends to greater success in the future.
Last week we offered up some observations on Focus Financial’s S-1, and as we continue to study the filings, it occurred to me that they say as much about the current state of the RIA industry as to they do about Focus itself.
Money, being what it is, never sleeps. It also never goes on vacation. I was, however, about to spend ten days away from the office with my older daughter in Scotland and England when Focus Financial (finally) filed for a public offering. One of the most anticipated events in the wealth management industry, the pendency of the Focus IPO didn’t cancel my trip, but I knew that my vacation was going to be at least punctuated by reading the S-1 along with my peers’ commentaries. I’ve now read the 275-page document a few times, and while it’s not your typical beach novel, the Focus prospectus is required summer reading for anyone in the RIA community.
