What does the HighTower-PE deal mean for RIAs?

What does HighTower Advisors' $100 million recapitalization deal with private equity firm Thomas H. Lee Partners mean for the financial advisory business? It's a major endorsement of the RIA business model, industry observers agree, and underscores the massive influx of PE money into the space — and the subsequent questions those investments raise. Read More

Why “Sustainable” Firms are Worth More

Valuation multiples are based on a lot more than asset totals. RIA owners often ask “What is my firm worth?” Many believe valuation multiples are relatively uniform across the RIA spectrum. In fact, valuations vary greatly, and are driven by what we call “sustainability.” Sustainable businesses are marked by five elements: size, margin, an effective/differentiated growth strategy, scalability and professional practices. These elements interact in a virtuous circle to drive value. Read More

What's Your RIA Worth? A Framework for Understanding Valuations

If you own a stake in a registered investment adviser, you probably spend time estimating what your shop is worth. With good reason.

Fees are coming down. Which puts pressure on annual compensation. Which makes equity stakes increasingly important to your personal wealth. Which means your retirement activities, whether you flip burgers in a greasy spoon or nurse fruity drinks on a Carribbean beach, depend on answers to three questions: Read More

 

Passing the Torch

While retirement plan advisers are gifted at planning for participants’ futures, they do a notoriously poor job of planning for their own—a situation that Jeremy Holly, senior vice president at LPL Financial in San Diego, finds supremely ironic. Many wait until they are close to retirement age before thinking about a succession plan for their practice, he says.

Why the inertia? “On the positive front, when financial advisers start their own firm, it’s because they love the profession. Years later, they still love it, and many don’t want to leave the profession,” says John Furey, principal and founder at consultant Advisor Growth Strategies in Phoenix. Read More

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Lessons for RIAs and vendors from a platform providers' demise

 It’s not as easy as it looks.

That applies to both breakaway brokers and the platform providers who service them — a fact most recently underscored by the demise of Sanctuary Wealth Services, which will go out of business at the end of March.

After nearly eight years of helping breakaway brokers become functioning independent RIAs by providing compliance, reporting, investment management and consulting services, Sanctuary saw too many firms defect to keep the business going. Read More

How Aspiriant knocked out another all-stock deal for an $850-million-AUM firm and why such pure-paper transactions don't grow on trees

Stanford had done its own succession spade work and its principals were willing to become workers in a Deloitte-cultured firm.

Brooke's Note: A billion here, a billion there ... sooner or later you're talking real billions. Aspiriant, with $10 billion or more in AUM, is what roll-ups aspire to be -- an RIA that serially acquires other big RIAs, or even smaller ones, at will. It does so by swapping its stocks for theirs.  Read More

Designing an optimal compensation program

The cost and complexity of developing effective compensation programs for advisory firm employees represents an ongoing challenge for firm principals. A successful approach to the issue is to focus on a top-down, strategic approach to compensation rather than bottom-up approach designed at the individual level.

That was the suggestion of IMPACT speaker John Furey of Advisor Growth Strategies, who focused on compensation and equity plans that he believes can drive excellence, not entitlement. Read More

Best new compensation plans for advisers

How should firms distribute, determine and design compensation packages for advisers and support staff?

Compensation makes up the single largest cost for RIAs, according Schwab’s most-recent RIA Benchmarking Study, yet many firms do not have a well-defined incentive package in place to reward and retain talent. Read More

Savant Capital Targets $1B Annual AUM Growth

The march towards heightened M&A activity might not be ready to fade anytime soon. But any such mergers and acquisitions frenzy by RIAs, say experts, is likely to be in large part driven by succession planning issues as much as competitive economic pressure.

A prime case in point is a recent move by Savant Capital in Rockford, Ill. The 30-year-old regional giant among wealth managers has used M&A as a growth strategy over the past four years to push assets under management past $5 billion.Read More

How Brent Brodeski 'cut the middleman out' to get a no-strings $50 million for succession nirvana

Brooke's Note: RIAs have proven to be mostly unbeatable because of their ability to evenhandedly quarterback financial challenges on behalf of clients. But when it comes to funding their own futures, RIAs have tended to seek off-the-rack solutions, which, by definition, do not fit all sizes. Keeping control is a big problem and can be a fatal flaw considering that control is at the heart of what makes RIAs not only great businesses but great places for self-actualization. Read More

Building a smooth succession plan

Handing over one’s life’s work is a process at once emotionally taxing and strategically complex.

For advisers running their own registered investment advisers, having a long-term succession plan in place is critical to safeguarding the continued success of both the firm and the clients that they serve.

To ensure a smooth transition, the focus must be on building a valuable business that is attractive for sale and keeping all options open, said three succession experts during a Financial Planning webinar covering best practices for succession planning. Read More

First Republic's $70B-plus RIA roll-up loses four top executives as its contract with Luminous team ticks down

For the last eight years, James H. Herbert II has been quietly working to upend at least two bits of RIA conventional wisdom: that RIAs can't be rolled up and that banks can't buy RIAs without belching them back out a few years later.

The CEO and chairman of First Republic Bank has overseen growth of the bank's wealth manager mightily enough by focusing on high-net-worth and ultrahigh-net-worth investors. Read More

How to Let Go: Best Practices for Succession Planning

Handing over your life’s work is a process at once emotionally taxing and strategically complex. For advisers running their own RIAs, having a long-term succession plan in place is critical to safeguarding the continued success of both the firm and the clients they serve.

To ensure a smooth transition, the focus must be on building a valuable business that’s attractive for sale and keeping all of your options open, said three succession experts during a Financial Planning webinar covering the best practices for succession planning. Read More

5 steps to elevate the next generation

As an independent firm grows, the role of an owner evolves frombeing a player on the team, to leading and managing an organization. Eventually, size and complexity will drive the need for greater professional management to help drive the owner's vision. Firms facing this need have three options: have the owner move into professional management and reduce responsibilities, elevate next generation professional talent from within or hire professional management from outside.

Elevating internal talent may be the optimal path for some advisory firms. For most, it is likely a combination where talented next generation professionals are elevated within the firm, and outside professional management is hired as a compliment. If your firm is in need of a diversified management capability, consider elevating the next generation to create leverage and return for the current founders/owners.

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Defining Internal Succession and the Next Generation Owner

News flash ... the advisor population is aging. Anyone in this industry knows this. Industry advocates have consistently called for better succession planning, that which promotes the long-term sustainability of RIA firms. This call must be heeded, and yet time and again, advisory firms are forced to turn to outside buyers or merger partners as a succession solution. And for some, perhaps the right choice is to find a buyer or a larger firm within which they can execute a smooth transition.  But a firm’s options should not exclude one that many advisors prefer – one which requires meticulous planning and execution: the internal succession. 

Planning for the next generation of owners is required for firms that want to remain independent or want increased succession options in the future. However, a lack of execution may result in a lack of confidence with the next generation of professionals within a firm.

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How Building a Succession Plan Can Increase Your Firm’s Value

Industry participants have articulated the risks of not having a succession plan for years – lack of continuity for clients, inability for advisors to realize the value of their life’s work, and risk for employees in terms of their long term employment. Surveys tell us that not enough advisors have developed a real succession plan, with most surveys triangulating about two-thirds of advisors without one. Although it is widely accepted that succession planning improves business continuity and protects owner equity, a comprehensive succession plan brings additional benefits. But to develop a truly comprehensive succession plan that maximizes value, advisors need to shift their thinking about what a succession plan really is. Read More

How to Prep a Financial-Advice Business for Sale

As more baby boomer financial advisers contemplate the sale of their practices, there are steps they can take to potentially increase the businesses' value and command a higher price.

Some value-boosting techniques, such as changing their compensation system, may take longer than say, cutting costs. So advisers should ideally focus on making selected changes a few years before they actually expect to sell. Read More

5 Mistakes to Avoid When Selling a Financial-Advisory Practice

Even advisers with decades of experience buying and selling investments for clients may have no experience selling a financial advisory practice.

That can be an issue for these veteran advisers when they are ready to sell a business they built or perhaps transition to retirement by combining it with another firm. Some make rookie mistakes during negotiations which can cost them hundreds of thousands of dollars—or even a deal. Read More