Independent advisors should be preparing themselves more aggressively for sale and consolidation, a new study says.

“We really think that over time, there will be a lot more consolidation, with firms [emerging] with $30 billion to $40 billion in assets under management,” says Neal Simon of Highline Wealth, one of six RIAs who are members of the group that released the study. “We think people need to be thinking about how they fit into that future.”


Nationwide there are thousands of advisors at RIAs who are running little more than lifestyle practices, Simon says. While they think they are creating resale value for their firms, the lion's share are not -- and will be in for a shock when they look to sell their practices, he adds.

“It’s pervasive,” Simon says. “If they want to build enterprise value, then they do need to think about what they bring to the table if they are acquired and how they can maximize the value in their business.”

In its study, the group -- known as Alliance for RIAs (or aRIA) -- highlights a number of critical steps for independent advisors:

  • Escape the lifestyle trap. “We talk about the lifestyle business as an annuity trap,” Simon says. “There are financial advisors that run lifestyle practices in which they like the annuity income that comes out of them but they don’t create new enterprise value.”
  • Change your name. If the firm is named after the founder, rebrand it so the firm is not tied to one person. “You want to limit the dependence that the business has on one or two key principals,” according to Simon.
  • Lock down a succession plan. Ensure the business has staying power beyond the founders.
  • Target steady growth. Higher growth rates create higher valuations when a business is sold. Aim for an annual 20% growth rate on AUM.
  • Boost earnings. Get your EBITDA above 30%.
  • Create scale. “Going from $200 million to $1 billion [in AUM], you get a dramatic increase in the multiple of what the business is worth,” Simon says.


As the RIA space matures, Simon thinks more and more advisors, of necessity, will begin taking these steps.

“The more people see their peers retiring and not realizing the value they expected to from their businesses,” he says, “the more they will understand that something needs to happen.”

The report also offered several other key recommendations for advisors wading into the M&A space.

Make sure you're emotionally ready to sell -- and then make sure both your firm's growth story and messaging are ready for an audience, the report says.

Understand that dealmaking is a numbers game: Advisors will need to “kiss a lot of frogs” to find the right purchaser and will have to be selective.

And finally, make sure you understand pricing and valuation: Every deal must make money for all sides.

Other than Simon, the members of aRIA are: Brent Brodeski, CEO of Savant Capital: John Burns, Principal at Exencial Wealth Management; Ron Carson, CEO of Carson Wealth Management Group; Jeff Concepcion, CEO of Stratos Wealth Planning; and Matt Cooper, President of Beacon Pointe Wealth Advisors.

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