The alternative path
If they do decide to embark on a sale, the study laid out how RIAs and other advisory practices can attract those higher valuations. For starters, owners can think through which of the four types of acquirers they would be open to joining: “large, systematic acquirers” with more than $50 billion in assets who want to buy accretive, growing businesses at their “core” or purchase “satellite” firms that expand their capabilities; “mid-market systematic acquirers” with between $20 billion and $50 billion in assets who have the same basic approach but with a smaller scale; “emerging acquirers” who are ramping up their M&A; or “opportunistic/boutique acquirers” who have highly focused strategies.
From there, prospective sellers must consider their growth rates, the degree that they have found a client niche and how to “invest in talent now or pay later,” as the report called it. For all of the discussion of the looming succession challenge amid upcoming advisor retirements, wealth management remains “a talent-starved industry right now,” Kawal said. An advisory team’s investment operations also come into the mix for buyers seeking to combine incoming advisors with their existing base and technology tools. And the bottom line for valuation revolves around organic growth.
“If you’re too out of the target box on the way that you invest, it may work for you, but a buyer is going to look at that as friction,” he said. “This is really about fit, but all of these things roll into the growth side of the equation.”
Advisor Growth Strategies
