Over the last several months, we have had the privilege of speaking with numerous smaller RIAs around the country. We define smaller RIAs as both Wealth and Asset Management firms with Assets Under Management (AUM) of $500 million or less, which we believe represent 90+% of the more than 20,000 independent RIAs in the U.S.
These are impressive firms led by passionate founders with tremendous conviction about their respective offerings. Whether it is a planning-focused Wealth Management firm that services a specific demographic, community or affinity group; or an Asset Manager with a differentiated investment strategy, they are critical participants in the marketplace. Each has its own culture and aspirations, but they share common challenges: building scale, strengthening distribution, broadening capabilities and sourcing capital.
- Scale: Through hard work and sheer determination, many firms have approached the $500 million AUM level. In some cases, the first $100 million took up to 10 years and then momentum began to build. However, even at their current size, many firms don’t have the skill set or desire to implement the people, processes and procedures required to take it to the next level. In the case of Asset Managers, they lack the distribution to accelerate organic growth and are essentially stuck. In these cases, firms can either accept continued modest net growth, invest in the necessary people and technology to accelerate growth, or consider merging into a larger firm with the infrastructure to support scale.
- Distribution: The methods by which Wealth and Investment Managers attract new assets are changing rapidly. While historical growth methods (e.g., referrals and networking) remain; today’s growth has been augmented mostly by firms that embrace digital media. Investing time in branding, developing “personas”, creating content and guiding prospects through the sales funnel are “growth accelerators”. This increases the number of qualified leads that are provided to fiduciary advisors who have historically resisted accountable sales and pipeline management practices. This would be the case for both planning-oriented Wealth Managers as well as Investment Counselors managing SMAs. On the Asset Management side, many of the firms we speak with are looking to find a distribution partner to market and scale their strong track records (i.e., through Morningstar Ratings) to garner shelf space with consultants, brokerage platforms, RIAs and other institutions.
- Additional Capabilities: As broad-based planning becomes “table stakes” for wealth managers, those who are primarily investment focused are open to partnering with firms who bring additional planning capabilities. This helps them be competitive, and importantly it provides more for their clients. However, it is also common to hear a firm with unique investment strategies express a reluctance to partner with anyone who forces them into centralized “models” and doesn’t allow them to continue with their historical practices. This creates a conflict between the need for standardization that comes with scale, and the desire to retain bespoke capabilities.
- Capital: Capital is needed for different reasons. Some smaller firms believe they have a strong platform to support growth but need growth capital to make acquisitions. Some have older founders seeking liquidity whose next generation cannot afford to buy them out. And yet others have younger founders interested in partnering with a private equity firm and rolling part of their equity to grow the firm to create significant residual value in the future.
These areas are by no means exhaustive but reflect the key themes we hear in our conversations. Importantly, smaller firms house extremely talented people with great cultures that can make a significant difference on their own, or as part of larger organizations. As the industry’s larger firms pursue smaller and smaller acquisitions, they should expect to find discerning sellers looking for partners who can allow them to scale while not losing their uniqueness.
Personalized Guidance for RIA Buyers & Sellers
Whether you’re looking to buy or sell an RIA, Harbor View can help. Our Financial Services practice is led by Doug Moffitt, a Wall Street and Wealth & Asset Management Veteran of more than 35 years. Doug has “walked in your shoes” and now uses his deep industry expertise to achieve outcomes that align with your true motivation (or your “Why”). If you are considering a potential strategic alternative for your company – connect with us at Harbor View. Our investment banking services help companies get the results they deserve, guiding them step-by-step through all stages of a transaction.
