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RIA Valuation Insights

A weekly update on issues important to the Investment Management industry

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Practice Management

The Importance of Specialization in Investment Management

A Review of Philip Palaveev’s The Ensemble Practice

In an industry characterized by constant pressure to adapt to market conditions and offer highly specialized client service, many financial advisors still spend a significant portion of their time acquiring new clients rather than collaborating with other professionals. According to Philip Palaveev in his recent book The Ensemble Practice, the majority of financial advisory practices still function as “solos,” or one individual against the entire market. This practice is inherently problematic in its lack of sustainability and the problems it poses for an owner who desires to leave a legacy post-retirement.

Current Events

2016 Q1 Analyst Call Report

Our quarterly summary of analyst calls is as revealing as usual, as pacemakers in the asset management sector review this quarter’s performance and how it may shape the year ahead. Madeleine Harrigan highlights four RIA market trends discussed by expert analysts.

Practice Management

Resolving Buy-Sell Disputes

On Being a Jointly Retained Appraiser

The closest we get to detective work at Mercer Capital is when we’re jointly retained to resolve a shareholder disagreement over a buy-out. Whether we’ve been court-appointed or mutually chosen by the parties to do the project, we’ve done enough of these over the years to learn that the process matters as much as the outcome. In this post, we discuss our process for handling such engagements.

Practice Management

Ambiguity in Buy-Sell Agreements is Expensive

Despite talented people, carefully developed business plans, and the best of intentions, not every partnership goes well, and some of those that don’t go well don’t end well either. When a partner leaves an investment management practice, the potential for a major dispute over the buy-out usually looms. Internally, at our firm, we sometimes refer to these situations as “business divorces”, even though the consequent acrimony often exceeds that of a marital dissolution. Here are a few mistakes we’ve seen others make, in the hopes that you read this and don’t do the same.

Practice Management

Why Should Your Firm’s Buy-Sell Agreement Require an Annual Valuation?

It’s all about Expectations Management

A recurring problem we see with buy-sell agreements are pricing mechanisms that are out of date. Keeping the language in your agreement up to date is important, but the most reliable way to avoid some unintended consequence of your buy-sell agreement is to have a pricing mechanism that specifies a regular valuation of your RIA’s stock. An annual valuation accomplishes a number of good things for an investment management firm, but the main one is managing expectations.

Practice Management

When Buy-Sell Agreements Blow Up

What Would Mom Do?

The subtitle of Chris Mercer’s original book on buy-sell agreements is “Ticking Time Bombs or Reasonable Resolutions?” Implicit in this title is that parties to buy-sell agreements too often discover the painful implications of the question never asked. I think about this every time we work on a dispute resolution project involving a buy-sell disagreement. In particular, I think about one of the first ones that I worked on, where maybe there was no disagreement, but should have been.

Practice Management

What Matters Most for RIA Buy-Sell Agreements?

In Our Experience…

If an asset manager’s buy-sell agreement is going to specify reasonable expectations for the value of the firm, what are they? We think there are at least four elements that should be clearly stated in each buy-sell agreement to ward off costly ambiguity.

Practice Management

Is Your Buy-Sell Agreement Purpose Built?

An Introduction to the Topic for Investment Management Firms

This post launches a series on buy-sell agreements, specifically as they pertain to RIAs. Buy-sell agreements are peculiar contracts between shareholders with a very specific purpose: to provide for the transition of ownership and liquidity in a business, usually in case of a specific event. Outside of a particular event, buy-sell agreements usually sit on a file server or in a desk drawer, and no one thinks about them, until a need arises to pull out the agreement – at which point no one can think about anything else.

Industry Trends Transactions

Stagnating Growth May Trigger More Dealmaking for Asset Managers

Some of our recent musings on mutual fund outflows and multiple contraction may actually have positive implications for RIA deal-making in 2016 and beyond. The maturation of the mutual fund industry and active fund managers will likely spur consolidation and buying opportunities for those looking to add scale. With valuations and market caps down over the last eighteen months or so, the affordability index has gotten a lot better for many of these businesses.

Asset Management

Mutual Fund Providers Down Sharply as ETFs Continue to Gain Ground

So far this month, the sports world has seen two incredible streaks finally come to an end – Golden State suffered its first regular season home defeat in 54 games, and Real Madrid snapped FC Barcelona’s 39 game unbeaten run in last weekend’s Clasico match-up. Both teams are still poised to retain their respective NBA and La Liga titles this year and break numerous records in the process, assuming their top producers continue their recent form. One streak that remains, albeit less reportedly, is passive funds’ dominance over their active counterparts over the last year.

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Key Contacts

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Matthew R. Crow, CFA, ASA

(901) 685-2120

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Brooks K. Hamner, CFA, ASA

(901) 322-9714

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Zachary W. Milam, CFA

(901) 322-9705

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Koby S. Allen

(901) 322-9737

Investment Management

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