FA ’ s 2023 RIA Survey And Ranking swooned in 2022 , the frothy markets also allowed a lot of bad behavior and papered over organic growth that everybody thinks was unimpressive .

“ When the markets were strong , markets were able to bail firms out ,” says Jason Ozur , the CEO of Lido Advisors in Los Angeles . “ When you take a firm that has $ 5 million in EBITDA , I ’ m sure some of the large aggregators last year in ’ 22 were paying 12 times EBIT- DA . So that ’ s a $ 60 million purchase price . Now in order to pay for the $ 60 million , what do they do ? They draw down on their debt . So $ 60 million of debt is going to cost most firms about $ 6 million in interest expense . Fast-forward to the end of 2022 : The stock market went down , bonds went down .” Meanwhile , he says , a firm ’ s EBITDA might have dropped down to $ 4 million . “ Now you have $ 6 million of carrying costs for $ 4 million of EBITDA . So you ’ re starting to see a lot of firms who are over-levered and have a need to go out and raise additional capital or [ preferred ] equity .”

According to Brinker , aggregators work under a “ shot clock ” mentality . Because the capital on their

“ People that are buyers on the merits of the quality of their platform … they don ’ t have guns to their head .”

— MATTHEW BRINKER Managing Partner , Merchant Investment Management

books is so expensive , these deals have to get done , he says , even if the terms are a moving target that ’ s likely to change . For instance , if a firm ’ s management sold a guaranteed EBITDA stream to a financial backer , in the worst case scenario that could squeeze out the managers ’ take entirely if cash flow falls low enough . Those managers would either demand new terms or quit .

“ Again , people that are buyers on the merits of the quality of their platform ,” Brinker argues , “ they don ’ t have guns to their head .”

Laura Delaney , the vice president of practice management and consulting at Fidelity Investments , says there has been a shift in deal structures . “ When money was cheap and there [ were ] a lot of deals happening at fast cadence we heard many deal structures were 80 % cash and equity up front followed by a 20 % deferred payment over two to three years . We ’ re seeing that shift where it ’ s de-risking on the buy side . It ’ s more favoring the buyer where it ’ s more like 65 % up front or 60 % up-front cash and equity .”

Has the pandemic changed the way you are doing business ?

87.72 %

12.28 %

6 + 94 A 2 + 98 + A

6.14 % of firms have not added employees over the last three years .

1.34 % of firms have laid off employees over the last 24 months .

Yes

If YES , how has it changed your business ? 87.72 % Increased use of meeting technology 7.29 % Slashed expenses to save on costs 6.14 % Changed investment strategy 2.69 % Expanded their healthcare advice

Are your employees still working from home ?

If YES , how often are they working from home ? 4.58 % On a full-time basis 79.51 % On a hybrid basis

71.81 %

Yes

15.90 % Only one day a week

28.19 %

NUMBER OF EMPLOYEES

HOW ADVISORS FOUND EMPLOYEES IN LAST 3 YEARS

Referrals From Other Employees

Referrals From Outside Sources

Through College Placement Programs

25.91 % Internet Advertising

FA Magazine July/August 2023 | Page 33

6 + 94 A 2 + 98 + A

6.14 % of firms have not added employees over the last three years .

1.34 % of firms have laid off employees over the last 24 months .