Most RIA Mission Statements: A Closer Look
Most Registered Investment Advisor (RIA) mission statements tout core fiduciary principles like integrity, excellence, client-centricity, and unbiased advice. These values are so prevalent among independent advisory firms that distinguishing one from another, let alone from major custodians like Schwab and Fidelity, can be challenging.
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I believe that the true differentiator for an independent advisory firm lies in its succession plan. I also argue that if private equity is involved in the plan, there may be a misalignment of values between the RIA seller and the PE buyer.
While a PE-backed exit may be successful, it could also signify a failure in fiduciary duty.
PE’s Open Agenda
It comes as no surprise that private equity firms are investing heavily in the RIA sector. With its high margins, recurring revenue streams, and strong client retention, the appeal for RIA owners seeking liquidity is evident.
Despite RIA leaders professing their client-centric, long-term approach, and emphasis on stewardship and culture, the succession planning process forces a stark choice: Is the firm to be nurtured or swiftly monetized?
It is crucial to understand what private equity firms prioritize: time-bound returns, leverage, and exit strategies. When an RIA, which claims to prioritize people, hands over control to a company focused on extracting value within a fixed timeframe, actions speak louder than words.
Internal Alignment
On the contrary, internal succession planning can prove to be more challenging. Employee ownership arrangements, though complex, emphasize stewardship and patience over quick financial gains.
Founders embarking on internal succession must confront uncomfortable questions about trust, financial rewards, and belief in the firm’s values beyond their tenure.
While the internal succession route may lack the glamour of a PE-backed exit, it offers the opportunity for a well-thought-out transition built on organizational strength. Witnessing the next generation assume leadership roles and ensuring clients are at the forefront of succession considerations are some of the rewards of this approach.
Before revising mission statements or core values, a thorough examination of the succession plan is imperative. Does it truly embody the firm’s values and the owner’s beliefs?
