Lewis Schiff
Lewis Schiff
Buying and Selling Practices in the Wealth Management Landscape
The economic turbulence has created new reasons to think about mergers, acquisitions and new practice models. The players have changed, too.

April 21, 2011
by Lewis Schiff

Unlike the mergers and acquisition (M&A) frenzy for wealth management firms leading up to 2007, the current landscape has regained some activity since the market turndown, but the players and strategies are different. Previously, large banks and financial firms aggressively pursued successful wealth management firms with affluent clients. Those buyers have been replaced by more selective registered investment advisors (RIAs) looking for a variety of arrangements including complete buyouts, slow sell-offs, mergers, hiring advisors from the wirehouses, formal networks and mutually beneficial strategic alignments.

Consolidation among RIA-firms has increased for several key reasons, according to Tiburon, CA.-based Tiburon Strategic Advisors, which foresees a 40-percent increase in M&A activity between 2007 and 2012:

  • The average age of firm principals has increased from 51 to 55, so these baby-boomer advisors will seek ways to monetize their practices as they approach retirement.
  • Younger advisors are seeking ways to increase profitability by reducing overhead, so combining practices becomes very attractive.

For firms that have a focus on high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients, activity has occurred in four major directions, according to Chip Roame, managing principal at Tiburon Strategic Advisors:

  • Increasing numbers of wirehouse reps joining existing larger RIAs.
  • Success of some networks among larger RIAs.
  • Hiring of former wirehouses executives to recruit for larger RIAs.
  • Emergence of firms allowing advisors to retain ownership of their book of business when they join and later permitting them to sell their business without the restrictions common in wirehouses.

Movement Trends

Looking at retaining some equity position rather than selling (see Potential Risks of Buying/Selling a Practice) outright for a succession plan, more wealth managers are structuring deals with internal-firm partners to sell part of their equity initially and retain the rest as a slow sell off over several years. In this way, the seller gets some cash up-front but participates in profits during the sell down. This kind of arrangement provides the owner with far greater total value. The growth in the equity portion will generally grow faster than the cash part invested in the stock market.

Sellers do have some advantages at this point. If you’re eager to transfer ownership to family members, partners or employees, lower valuations make it a good time to sell equity, while minimizing taxes. Today’s buyers are better grounded in the wealth-management model. In the push toward independence from large firms, especially from the wirehouses, disgruntled advisors seeking to merge with existing RIAs will find custodians, attorneys, investment bankers and others able to facilitate these deals.

Buyers Today

In the run-up of interest and valuations that went on from 2004 to 2007, banks, investment banks, insurance companies, broker dealers and private equity firms were very interested in buying (see Potential Benefits of Buying a Practice) the larger wealth managers. Since that time, many of those institutions have instead had to focus on their own houses — restructuring their priorities and organizations, working on damage control and cleanup. Regulators, capital requirements, paying back government loans, lawsuits, merger integration, downsizing, layoffs and other factors have arisen in priority as acquisition of RIAs have dropped precipitously.

A Tacoma, WA.-based research firm FA Insight’s and Jersey City, NJ.-based Pershing Advisor Solutions’ combined study reveals that while the role of banks has declined, active players have been mostly regional banks that managed to maintain healthy balance sheets or trust companies that continued to initiate deals to acquire RIA firms.

In addition to the larger RIAs, many of which came through the market turbulence with new clients and more assets under management (AUM) from existing ones, aggregators are continuing to hunt for firms to buy. Some of these roll-up firms have been very successful, but others haven’t, so advisors are looking at these deals more carefully.

Upheaval in the Family Office

One of the things that happened during the market turmoil was that a lot of multi-family offices lost AUM or lost clients.

For single-family offices, the practice economics have become clearer after the turmoil so some have had to adjust their practice models. Many have become multi-family offices or have developed arrangements with third-parties to handle many of the responsibilities. Those that remained strong have long been well diversified, utilizing hedge funds extensively and even investing in timber and other traditionally institutional asset classes, according to Roame. Multi-family offices now seem to be following similar trends. In terms of M&A directions, single-family offices rarely have any reason to merge, he adds.


The recent trends in firm valuations show that trending down prices, observes Roame. The first problem is that assets are down for many firms, which directly affects valuation. “In addition, there are few legitimate buyers and even fewer willing to pay cash up front. Many larger RIAs have outgrown the succession-plan route of employees buying out the equity holders and competitors also cannot generally afford such a buyout when a significant amount must be paid up front. By and large, small- and middle-size RIA businesses lack plans and their principals are aging, so this is a concern that needs to be resolved,” he concludes.

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Lewis Schiff is a senior managing principal of Advanced Planning Group, a family office network for advisors.

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