It’s not merely the influx of private equity money fueling M&A in the RIA industry, it’s demographic trends too. And that’s got an increasing number of financial advisors anxious about their own retirement plans, a new Cerulli study showed.
In the coming decade, 105,887 financial advisors plan to retire, or about 37.4 percent of industry headcount and 41.4 percent of total assets, according to the latest Cerulli US Advisor Metrics report. That said, more than one-quarter (26 percent) of advisors who see themselves retiring within the next 10 years are unsure of their retirement plans, with this rate being highest among advisors who are affiliated with independent RIA firms (30 percent), the study said.
Independent RIAs face a greater number of concerns associated with succession and retirement planning than affiliated wealth managers. The Cerulli study said that the most acute of those challenges are finding a qualified buyer for their practice (86 percent), structuring deal terms (63 percent), and valuing their practice accurately (53 percent).
Almost half (48 percent) of financial advisors are interested in acquiring a practice. Nearly one-third of advisors (28 percent) are open to an acquisition, but not actively searching for one, while 19 percent are actively seeking acquisition opportunities, the study said.
“The significant challenges faced both by sellers and potential buyers have created robust demand for third-party firms that can provide expert valuation and advisory services as they relate to these types of transactions, and for firms such as independent broker-dealers for whom these services create an opportunity to expand their value proposition to their affiliated advisors,” said Andrew Blake, associate director from Cerulli, in a statement.
Rob Sandrew, chief growth officer at Integrated Partners, agreed that “there's a lot of movement out there” due to the industry’s demographic challenges. He said that is forcing acquiring firms like Integrated Partners to become “very disciplined in terms of the type of advisors that we bring on board.”
“What we're looking for is advisors that are very growth oriented, very successful,” Sandrew said. “They again want to go upmarket, and they know that we have the ability to help them, not only in terms of identifying opportunities in terms of clients, but also executing on that.”
When it comes to the rising prices for wealth management firms helped along by the huge flood of private equity dollars into the RIA industry, Sandrew said it’s probably gone “a little bit too far.” Nevertheless, valuations will continue an upward trajectory, he said. The key to success in such a hot market, in his view, is to stay focused and not view it as a “land grab.”
“We get approached constantly in terms of opportunities for us to buy businesses, and we have to be very mindful and go back to the fact that we want philosophically aligned teams or RIAs that are looking to ultimately be acquired,” he said. “We want to make sure they want to continue to grow and they also value the resources we bring.”
Charles Failla, founder and CEO of Sovereign Financial Group, is currently exploring succession and continuity options. A very important first step for advisors in a similar position is to talk with a handful of the more established consultants out there to put together a “succession planning wish list," he said. By using such a list, an advisor can start identifying what is important for their needs as well as the needs of their clients.
“Once this wish list it compiled, the process can then shift to how to best execute on achieving the advisor's short- and long-term goals. To be sure, there are many ways to have a successful transition to retirement, but, as we all tell our clients, a good retirement starts with early planning,” Failla said.
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