FA ’ S 2024 RIA SURVEY & RANKING says it ’ s unlikely . “ I ’ ve witnessed firms who have taken on flat fees and whatnot . They spend a lot of time each year renegotiating fees with their clients .”

Larry Miles , the CEO at Choreo , has made sure that clients understand all the services it provides . They might not know they need or want something or that the firm can meet a need , whether it ’ s estate planning or tax help , and that ’ s a good opportunity for a competitor to swoop in and make their own case . “ We want to make sure we are constantly reminding them of the different ways we can be of service .”

What ’ s In It For the Young ?

Some young advisors are no longer waiting for promises of equity . According to Moore , “ XYPN has almost 1,900 advisors and many ( if not most ) were part of a promised succession plan that fell apart . One big reason is the valuation issue . The valuation spike has driven many to starting their own firms , which is why you ’ re seeing a boom of solo and small RIAs being started .”

Indeed , the number of SEC-registered advisors hit a record 15,396 , according to the Investment Adviser Association in a recent industry snapshot . New firms are being created faster than they can be consolidated .

Meanwhile , the private equity money awash in the space has helped advance the industry ’ s corporatization and professionalism , so that firms can offer better career tracks to people with different specialties . That could help solve a problem that younger advisors have had in the past where they are mostly forced to work for an aging entrepreneur , wear many hats , help grow a firm — and then find it ’ s too expensive to buy into .

Ken Stern , the president of Lido Advisors in Los Angeles , says that his firm now has its biggest intern group ever . “ We didn ’ t even have an intern class

HAS THE PANDEMIC CHANGED THE WAY YOU ARE DOING BUSINESS ?

86.92 %

Yes

13.08 %

No

If YES , how has it changed your business ?

Increased use of meeting technology 100.00 % Slashed expenses to save on costs 6.45 % Changed investment strategy 5.65 % Expanded healthcare advice 2.69 % five years ago . … Now we have interns ranging from being in the financial planning school , to computer scientists and people that are specializing in data programming . We have interns in so many different modalities . Could I have handled something like this , or many firms , four or five years ago ? There ’ s no way .”

John Furey , a managing partner and consultant with Advisor Growth Strategies says that when he got into the business 20 years ago , the feeling among founders was that they wanted to max out the value of their equity for themselves . But those firms that want to survive a generational shift are going to get equity into the hands of their younger advisors earlier . “ You have to equitize your team far sooner than you think .” He says that he ’ s not a fan of seller financing , but he says some firms have developed smart relationships with local banks to help their younger advisors buy in . There are also firms with more sophisticated buy-sell agreements that open up opportunities for young staffers to buy equity every year .

Tom Manning , the president and CEO of F . L . Putnam , headquartered in Wellesley , Mass ., says that his firm ’ s parent holding company ( which has been around since the 1920s ) owned 100 % of the firm up until a few years ago . “ We ’ ve been buying the stock from the parent and distributing to employees as part of compensation now since 2015 . We ’ ve got wide distribution of ownership at this point . The mechanism by which we acquired the shares was to pay cash to the parent company . They give us the stock , we distribute it to employees .”

Valuations Still Strong

The consensus among M & A consultants is that valuations for firms have plateaued but are still strong and in the best cases can be 20 times earnings .

DOES YOUR FIRM HAVE AN OUTSIDE INSTITUTIONAL INVESTOR ?

■ Yes 17.29 %

■ No 82.71 %

ACTIONS FIRMS HAVE TAKEN IN THE LAST 3 YEARS

CATEGORY

If YES , what percentage of the firm do they own ?

ACTIONS TAKEN IN LAST 3 YEARS %

■ 0-20 % 12.16 %

■ 20 % -40 % 25.68 %

■ 40 % -60 % 20.27 %

■ More than 60 % 41.89 %

ACTIONS LIKELY IN NEXT 12 MONTHS %

Hired strategy consultant 39.49 % 7.01 % Obtained a valuation appraisal 42.76 % 10.51 % Added one or more offices 34.35 % 13.32 % Held exploratory merger talks 37.85 % 9.81 % Rejected a merger proposal 26.40 % 3.27 % Hired a former registered rep to work at your firm 36.68 % 11.92 %

JULY / AUGUST 2024 | FINANCIAL ADVISOR MAGAZINE | 35