RIA firm sales could hinge on succession planning, study finds

Cultural fit is also a major acquisition consideration, Franklin Templeton finds

Jan 30, 2019 @ 12:39 pm

By InvestmentNews

RIA principals selling their business may get less than top dollar if they don't develop a succession plan.

That's the key finding of a survey of 162 registered investment advisory firms of all sizes conducted by Franklin Templeton Investments.

"Little more than a third of RIA leaders surveyed have begun in earnest the process to ensure they will smoothly execute their transition to retirement," the report said. "By underestimating the amount of time and the expertise required to prepare for a transition, whether internal or external, many RIA leaders are at risk of suboptimal outcomes for their firm as well as for the future of their clients and employees."

(More: RIAs without a succession plan should take these steps immediately)

The report said the seller's market is likely to continue for some time, but that potential buyers are seeking value. They place an emphasis on assets under management, revenue and profitability. In addition, organizational culture is a primary decision criterion when transactions are under consideration.

"Finding a [cultural] disconnect at the 11th hour has proved a deal breaker in more than one major transaction," the report said.

It notes that for RIA firms, "it's never been more of a seller's market." Informed estimates, the report said, puts the ratio of buyers to sellers at around 50 to 1.

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