In a time of frenetic deal making and consolidation, a half dozen leading RIAs have banded together to inform other advisers of exiting options other than joining a roll-up firm or a consolidator.
Called aRIA, short for the Alliance for RIAs, the group is billing itself as a “think tank” that will offer ideas for advisers who want to build their practices' value. The group will deliver a white paper on the topic by the end of September, and one of its key goals is to highlight the different business models that independent and wirehouse advisers can look at when making a change such as selling their practices.
The six registered investment advisers in the group collectively advise $18 billion in assets. An announcement about aRIA's formation is expected today.
“This is an answer to the roll-ups, and the message to advisers is, you don't have to go there,” said Ron Carson, chief executive of Carson Wealth Management and one of the members of the group. “We're going to produce some white papers on the economics of the business and really try to help advise the adviser on when it makes sense to be part of another organization and when it makes sense to get really aggressive to invest in your own company.”
The five other firms in the new group are Savant Capital LLC, Exencial Wealth Advisors, Stratos Wealth Partners Ltd., Beacon Pointe Wealth Advisors LLC and Highline Wealth Management LLC.
They are all “fully independent of private equity or venture capital” and therefore can seek a variety of ways of doing business beyond “looking for a good "deal,'” the aRIA group said in a statement.
“I've looked at the economics of the roll-ups that are out there, and they're not very compelling, “I think the stock [of roll-ups] is overinflated,” Mr. Carson said.
“How do you take a bunch of different businesses that really don't have any commonality?” he said. “These roll-ups seem to work well in a bull market, but I'm not so sure they're going to do so well if we have a vicious bear market, when they're close to maturation and want to go public.”
Advisers of all stripes are always hungering for information of the value of their practice, which is often their largest single asset. For more than a year, demand by investors such as private-equity funds for wealth management firms has driven the market to new heights.
Executives at RIAs are pointing to the 43% premium that Lee Equity Partners LLC this month paid for The Edelman Financial Group Inc. as proof that private-equity managers will continue to pay well for large advisory firms.
When asked, Mr. Carson said he considers firms such as United Capital Financial Advisors and Focus Financial Partners LLC to be roll-ups.
“They're nice guys, and I like their people, but I just don't believe the marketplace is going to give them the multiple that they think they [will get] on their stock,” Mr. Carson said.
United Capital chief executive Joe Duran disagrees with Mr. Carson's statement regarding the potentially disappointing value of stock in firms that have aggressively expanded over the past few years.
“United Capital is not a roll-up,” he said. “This firm completely integrates its new advisers, and all of the employees are employees of the firm under one ADV [filing with the Securities and Exchange Commission] and one pricing schedule. When people join us, they join one company.”
Mr. Duran added: “There is a lot of interest for any large-scale RIA by private equity right now, and when there's demand,” those firms will have a pricing advantage.
“The Edelman deal is a key indicator,” Mr. Duran said. “With private equity, I've never seen a time like this. Edelman and [last year's private-equity purchase of] The Mutual Fund Store [LLC] have really changed the equation. It's a feeding frenzy.”
A spokeswoman for Focus Financial, Jennifer Geoghegan, did not return calls seeking comment.
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