Evan Simonoff

Is private equity driving generational conflict among advisors ?

T ’ S POPULAR TO REFER TO THE STREAM OF TRILLION-DOLLAR FEDeral deficits funding America ’ s burgeoning entitlement system over the last decade as generational theft committed by baby boomers against their children . That ’ s an oversimplification — today ’ s Social Security and Medicare recipients paid into the systems for 40 years or more — yet it also has a ring of relevance to it .

Attend an event in the advisory world , and it ’ s not uncommon to hear another generational beef — that the founding generation of RIAs has cashed out of the business at breathtaking speed over the last five years , tantalized by private equity buyers and the huge premiums they offered . In many cases , these deals made the original principals very rich while leaving next-gen advisors as minority shareholders of highly leveraged firms . Some are locked into non-compete agreements that require them to leave the profession if they want to quit their firms . Others are expected to earn their equity by helping institutional investors first repay huge amounts of debt , often issued at highly favorable terms to those same PE investors .

Again , it ’ s too complex to be called generational theft . Many next-gen advisors have won the opportunity to manage and profit as owners of large firms they never could have acquired with their own resources . Nonetheless , it still represents a massive transfer of wealth , this time from private equity backers to the founding cohort of first-generation RIAs .

For younger advisors and the profession at large , the story is just beginning as the makeover of the RIA world proceeds full throttle . What happens next is anyone ’ s guess , but it ’ s clear that outside owners , primarily PE firms , will play an outsize role in determining the business ’ s direction going forward .

14 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM