Much of the sector’s recent press has focused on the current M&A environment as well as practice management issues for RIA firms, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the investment management industry.
Goldman Sachs Readies Splashy RIA Retail Debut as it (Likely) Adds $24-Billion United Capital to $35-Billion AUM Ayco for $59-Billion 82 Office Behemoth; Months After Buying RIA Lure From S&P
By Oisin Breen, RIABiz
Goldman Sachs recently completed its acquisition of United Capital for $750 million, marking a major expansion into the RIA space for Goldman and a significant endorsement of the RIA aggregator model. The deal value represents approximately 3% of United Capital’s $24 billion AUM and a little over 3x revenue of $230 million.
By Jessica Mathews, FinancialPlanning
RIA aggregator Focus Financial reported 33% year-over-year revenue growth in the first quarter. The growth comes primarily from new partner firms acquired over the last year. In its IPO filings last year, Focus management outlined a growth strategy based on continued M&A and organic growth at Focus’s partner firms. While organic growth has faltered somewhat (partly due to market conditions), Focus has clearly executed on the M&A component of its growth strategy. So far this year, Focus has acquired 21 firms, with 12 of those acquisitions taking place in the first quarter.
By Charles Paikert, FinancialPlanning
HighTower Advisors has exited the broker protocol, the industry agreement which allows advisors switching employers to take basic client contact information with them. Exiting the protocol reflects the evolution of HighTower’s business model from recruiting wirehouse teams to focusing on RIA acquisition activity. For some, the decision to exit the protocol is seen as a way to increase retention — perhaps in preparation for a future liquidity event. With recent liquidity events from the other two major roll-up firms, Focus Financial and United Capital, now may be a good time to exit for PE-backed HighTower.
By Chris Flood, Financial Times
Private equity interest in wealth management has continued to increase, given the industry’s growth opportunities and stable cash flows. The wealth management industry remains highly fragmented but is poised to consolidate.
By Jeff Benjamin, InvestmentNews
Some industry players see the pace of consolidation picking up. Ron Carson, CEO of Carson Group, predicts that in seven years there will be a third less firms than there are today. Historically, there has been less consolidation than we would expect given the size and fragmentation of the industry. However, given the current dynamics of aging ownership, PE interest in the space, and consolidators offering scale and back office efficiencies, the pace of M&A may accelerate significantly.
By Michael Kitces, FinancialPlanning
Tracking productivity, identifying its drivers, and understanding how to improve are important aspects of managing a successful advisory firm. Michael Kitces offers his take on some of the key performance metrics for advisory firms.
In summary, consolidation and M&A continue to be major trends in the investment management industry. RIAs continue to receive interest from PE investors due to the recurring revenue and growth potential that wealth management firms offer. Aging ownership bases have also contributed to the consolidation tailwind. The RIA aggregator model has now been endorsed by Goldman Sachs with its acquisition of United Capital, as well as the public markets with Focus Financial’s IPO last year. Whether HighTower’s PE backers will seek an exit in the near term remains to be seen, but given the interest in the Focus IPO and the attractive multiple offered by Goldman for United Capital, it is clear that market interest in the aggregator model is strong.