The looming exits of more than 100,000 financial advisors managing nearly $15 trillion in client assets will play out in a series of deals like one Nebraska firm's merger this past May.
In a transaction at an undisclosed value, former RBC advisor Tim McEwen took a stake in Lincoln and Omaha, Nebraska-based registered investment advisory firm Prairie Wealth Advisors and brought his team, The McEwen Group, to the one led by CEO Craig Hundt. The addition of $400 million in assets under management and $200 million in 401(k) plan assets boosted Prairie's client holdings to $1.3 billion. Hundt owns 53% of the combined firm, while McEwan owns the other 47%, according to the firm's Form ADV brochure.
The transaction acted as the bookend to conversations that began nine years ago and took a more serious turn over roughly the past four as Hundt, a 39-year industry veteran, considered his retirement more seriously, he and McEwen noted in an interview. It also represented a divergent path from the traditional choice between passing
But both advisors say the deal is paying off, with McEwen citing the fact that the firm has already hired three more employees, including a chief investment officer and a director of compliance and governance.
"I've probably never worked harder, but, at the same time, I've probably never enjoyed it as much," McEwen said. "Any really good thing takes usually a difficult or a challenging process to achieve, and I would say this is a very good example of that. Having the freedom and flexibility to serve your clients in the best way possible has just been a true joy."
He pointed out that the whole process stemmed from Hundt's "really strong desire to have the firm live beyond him," although those days will only come to fruition "if and when he decides to slow down." And they expressed a shared understanding that there is no set timeline for the succession from Hundt, Prairie's founder, to McEwen, who's now the firm's president.
Hundt described the timing as "fluid," even as he said he was thinking, "Oh great, I'll be done in two years," about six months ago.
"It brought out my animal spirits, so now all of a sudden I've become competitive again and so I've got a strong desire to go after new business and I like doing that," Hundt said, noting his strong network over four decades in the industry, the "much deeper bench" at the firm thanks to the influx of McEwen's team and how the deal tacked on more 401(k) business for the RIA. "I've got more arrows in my quiver, so to speak, so that I can go out and go after this business."
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Warning: 'Reinvigoration' may be a side effect
A successful merger often results in a "reinvigorated" founder, according to Mitchell "Mitch" Fenimore, a former investment banker who is now senior vice president and the Lancaster, Pennsylvania, market leader for Camp Hill, Pennsylvania-based RIA firm River Wealth Advisors. Fenimore works with a lot of business owners considering succession plans across many fields. In the case of an RIA merger, those deals can also deliver new business lines to the combined firm, hike up profit margins, valuations, scale and operational resources, and identify the successor — or at least give the owners a pool of prospective ones, he noted.
"It gets that owner a little bit out of the day-to-day stuff," Fenimore said. "He or she's got time to think about things, other than just making sure that we get all the things done that we need to do."
At the same time, the new partners must avoid some of the common pitfalls. Those could show up in the absence of "designated roles and responsibilities" for each of them, since any business simply needs "a way to make decisions" about its strategy and everyday needs, Fenimore noted. And new business lines or different fee models could prove complementary at the combined firm — or strike an entirely discordant tone. For instance, one advisor could be fee-only while another accepts commissions, one could have an insurance license while another does not, or one could be more used to
"If one firm has a certain culture, and it's different from the other, they can clash," Fenimore said. "If you're taking two things that generate fees in a different way and you haven't come to a meeting of the minds that you're going to do both, you might run into cultural challenges."
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Counting the advisors and their clients' trillions
Those kinds of topics add up to the many dilemmas confronting the entire wealth management industry as advisors determine their plans for retiring someday.
For understandable reasons, the authors counted advisors who are 60 or older but stated an expected retirement date that was longer than a decade away, along with those admitting that they did anticipate retiring within the next 10 years.
Those specific figures highlighted a challenge that the industry
At least 27% of those advisors who are expected to retire within a decade, 27,584 of them with $4 trillion in client assets, admitted they're "unsure" of their succession plan. And they have 28% of the assets among the group. Slimmer slices said they will hand off the business to another advisor in their practice (21%, or 21,630 advisors with $3.3 trillion); transfer it to a junior advisor or family member (20%, or 19,982 with $3 trillion); expect their firm to reassign the clients (16%, or 16,696 with $2.3 trillion); or plan for an external sale (15%, or 15,504 with $1.6 trillion).
Those dynamics explain why
"Rookie advisors placed in larger advisor teams with long-term career development plans will be best positioned to create natural retirement and business succession paths for advisors, who then can monetize their business while transitioning it to highly trained financial advisors within their practice," Cerulli research analyst Olivia Morgan said in a statement. "A long-term approach provides both a retention and a recruitment strategy, supporting the development of a pipeline of high-quality existing and new advisors to seamlessly support the transition of industry-wide advisor retirements."
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An array of factors and deal iterations
But those trends and the problems they pose often apply differently across RIAs and other wealth management firms of all sizes and advisor tenures. For Prairie, the merger deal took its final shape after an array of other iterations of its structure, McEwen and Hundt said.
Over roughly the past 10 years, McEwen's previous move from UBS to RBC, the possible involvement of Hundt's son, the services of one M&A advisory provider that led into the partners choosing another that was a better fit, the post-deal client retention or attrition terms, and the
Regardless, McEwen and Hundt eventually agreed to the transaction they say has been beneficial to both teams and their clients. And the currently unknown time for Hundt's retirement date isn't causing tension with McEwen, who's a 23-year veteran of the industry in his own right.
"From my standpoint, I'd love Craig to stay around as long as possible," McEwen said. "His ability to run a firm and do it well is impressive, and so I'm not in any hurry for him to say he's retiring."
The flexibility provides another aspect of the appeal of their succession deal when compared to the other possible paths, according to Hundt. Since some of Prairie's client relationships span as much as 40 years with customers who "have been very good to my family and I," Hundt said he felt eager to get an answer to the ones who "have asked me for years, 'What's going to happen to us if something happens to you?'"
Still, he didn't
"There was a lot of discovery, and that doesn't stop," Hundt said. "You're going to have the ups and downs and the roadblocks. … If you're the older advisor like me, if you really do want to be done in two or three years, then you probably should take a harder look at a fold-in or a buyout. I'm more willing to make a time commitment. I'm looking forward to being a problem solver."
