FA ’ s 2023 RIA Survey And Ranking
Valuations of RIA firms have remained robust for the time being , say several M & A specialists , because there are other factors at play besides revenue . Dan Seivert , the CEO of investment bank Echelon Partners , says that as RIA revenues are blunted by market forces , a firm ’ s characteristics become more crucial . The average ( based on the mean ) firm in Financial Advisor ’ s 2023 survey saw a 5.45 % increase in client relationships and a 19.81 % decline in assets under management . The median number of clients rose a more modest 1.2 % and median AUM fell 12 %. Individual firms ’ performance varied widely as some continued to grow through acquisitions and others via robust 401 ( k ) businesses .
Wetherby says her firm did a midyear compensation study and felt that mid-level people with four to seven years under their belt were most in demand and not getting paid well enough . “ That ’ s what we found from doing the salary survey , and so we made adjustments . … It feels to me like there is the most competition for mid-level people ,” she says , “ because those people really add a lot of value .” She describes this cohort as wealth managers in training who are supporting the senior people , “ whether it ’ s running
Fifty-three percent of those RIA firms surveyed said that assets from new clients accounted for most of their 2022 inflows , with 36 % citing assets from existing clients .
“ As cash gets more expensive , buyers may find it necessary to extend beyond monetary offers to owners , potentially incorporating equity for younger advisors as an enticing incentive for them to remain ,” Seivert says . “ On average , wealth managers have less AUM than they did a year ago , which is typically accompanied with stagnant EBITDA growth . However , valuations continue to be robust due to factors such as the aging demographic of financial advisors , the need for scale to invest in technology , regulatory pressures , fragmentation and buyer interest .”
How Does Your Garden Grow ?
Seivert says that the most attractive targets are those firms growing organically regardless of investment results . “ There is a high demand for achieving economies of scale by improving technology , enhancing back and middle office support , and pursuing vertical integration , particularly in the insurance and wealth services sectors . There has also been a consistent rise in the demand for [ turnkey asset management ], digital solutions , wealth tech products , and similar technological advances being leveraged to significantly expand a buyer ’ s suite of offerings to clients .”
There ’ s more than one way to skin a cat , and more than one way to build an RIA . As firms become larger , there ’ s going to be more pressure to do more things for more clients — to do estate planning , tax planning , accounting . Many smaller firms that don ’ t have those capabilities are selling out to larger firms who can .
Brent Brodeski of Savant Wealth Management in Rockford , Ill ., says his firm is one of the larger ones not afraid to mix the accounting and advisory businesses . He says other firms are squeamish about that given accounting ’ s different culture and margins .
“ There ’ s a lot of people that would love to buy the wealth firms out of accounting firms , but nobody ’ s open to buying the whole package other than us , to my knowledge ,” Brodeski says . “ By midyear we ’ ll [ be ] at $ 15 million to $ 20 million accounting and tax revenue . But that ’ s like 10 % of our revenue . And it ’ s really serving the mother ship — the wealth management business .”
One of the challenges in the current high interest rate environment is attracting talent to grow the businesses . Bicknell at Mariner Wealth says paying good talent is getting harder and harder . That sentiment is echoed by Deb Wetherby , the managing partner of Wetherby Asset Management of San Francisco , which merged with Seattle-based Laird Norton Wealth Management to create a West Coast powerhouse last year . financial projections or researching issues or preparing meeting decks .”
These are also going to be the people necessary to make a firm valuable to acquirers , who want to keep talent and keep it aligned for future years . Advisors are also dealing with asset outflows from clients retiring . Forty-two percent of advisors in this year ’ s Financial Advisor RIA survey said that assets withdrawn by retired clients accounted for their largest outflows and clients who died represented another 12.9 % of outflows .
Despite the challenges advisors faced in 2022 , many firm chiefs added that , in the end , they always gain during market turmoil , because that ’ s the time clients are susceptible to overtures from new counsel . Fifty-three percent of those RIA firms surveyed in Financial Advisor ’ s most recent survey said that assets from new clients accounted for most of their 2022 inflows , with 36 % citing assets from existing clients . It could be that turmoil in other sectors ( think of the recent regional banking and commercial real estate crisis ) have once again shown potential clients that their funds might be safer in RIA relationships .
Ask David Hou of Evoke Advisors . His team fortuitously left two giant financial firms on the brink of cataclysm — they left Merrill Lynch in 2008 to form Luminous Capital , which they then sold to First Republic Bank . By the time First Republic was liquidated in 2023 after its own collapse , Hou ’ s team had already moved on and created Evoke in 2019 — largely , Hou says , because his team ’ s alternative assets were easier to manage in a smaller context .
Hou says that banks ’ aggressive move into wealth management will not likely threaten RIA growth . “ I think people are saying , ‘ Do I want to be at a bank that is 20 times levered as opposed to being at a custodian who is much more stable financially ?’ … We tended to grow more quickly when the markets were volatile .”
32 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM