The surge in private equity’s interest in Registered Investment Advisory firms (RIAs) is a trend that’s hard to ignore. This summer, Fisher Investments secured a significant deal, selling a minority stake to Advent International and the Abu Dhabi Investment Authority. This transaction valued the firm at nearly $13 billion. Creative Planning has also been in the spotlight this fall as TPG Capital took a $2 billion stake in a deal that could value Creative Planning at more than $15 billion.
Today’s sometimes surprisingly high valuations and big deals have far-reaching implications for other independent financial advisory firms – mine included. These deals highlight the growing trend of PE investments in the RIA sector, driven by the stable cash flows and predictable revenue streams that well run firms offer. But make no mistake, this isn’t just about funding. It’s a transformative shift that can offer enhanced growth opportunities, technology upgrades, and operational efficiencies — but it also brings the need to align with investor expectations.
Accepting PE money can become a slippery slope. Misalignment of the end goals and values can create friction within the wealth management firm, creating problems on a cultural and philosophical level. Misalignment almost always has a negative impact on what was previously a good work environment and is detrimental to the end client experience.
Don’t get me wrong: I’m all for smart entrepreneurs reaping due rewards as market factors dictate. But if growth comes at the detriment of the clients, then what is it for?
A WAKE UP CALL FOR ADVISORS
Understanding the broader market environment is crucial. Just as Crux Wealth Advisors and other firms have adapted to offer a wider range of financing and support services, your RIA needs to stay attuned to client demands and market trends.
Large valuations point to the importance of scale. While not all RIAs can boast such size as Fisher or Creative, focusing on growth through strategic acquisitions or partnerships can position your, the advisor, and your business interests more favorably within the market.
The continued news announcements are a big reminder that staying static isn’t an option. For hybrid and independent advisors, this means evaluating their growth strategies. Tactics might include bundling services and reassessing business model choices, ramping up on PR, adding staff and new technology, or joining a larger RIA to scale and grow, create continuity and exit plans, etc.
The end client’s knowledge of the financial services industry is ever increasing, and so is the desire for a truly independent, fiduciary platform. A non-captive environment is crucial.
Relative to other industries, this space is in the adolescent stage of consolidation and enterprise expansion. I’m hopeful that in addition to the economic opportunities being achieved, there is an ever-increasing focus on multiple expansions of direct value to the foundation of the industry, and to our end clients. The capital and the partnerships need to have a more surgical focus on improving operations, systems, technology, and communications for the benefit of the end clients.
This is an exciting time to be in the RIA ecosystem. By banding together with like-minded other professionals many of us are already reaching new heights. By doing the right stuff and putting the work in, entrepreneurial advisors can realize outstanding success – and not just economically. I, for one, am focused on building an operation that is truly aligned with my heart’s core: A desire to impact the world through better work for our clients, a commitment to creating great working conditions for staff, and a vision to greater outcomes for all concerned. How about you?
To avoid contradictory results, let’s stay focused on our clients’ best interests and ensure that our growth strategies align with client needs and values.
Contact Travis for a confidential conversation.
Author
Travis Alexander, CRPC®
CHIEF EXECUTIVE OFFICER
