WealthManagement.com: The Future of Advisor M&A
August 2020 By: David Grau Jr., MBA Since the close of Q1 2020, we have seen consistent unrest, including market turbulence that has put many advisors, their relationship with clients, and their investment strategies, to the test. Fortunately, it is times like now that highlight the work advisors do for their clients, much of which is unnoticed when markets are steadily improv-ing. The relationship between the advisor and their clients is the bedrock of value in an RIA, regardless of the amount of AUM, revenue, or profitability. And, while 2020 won’t be the best year for advisors, the inherent value of RIAs seems to be one of the few things unaffected by COVID-19. But, like throwing a pebble into a pond, we will see the ripple effects of 2020 on the M&A market for years to come. Short Term Impact Advisor M& A activity was on a record-setting pace in 2019, with 2020 expected to be more of the same. Then COVID-19 happened. Deals that reached the letter of intent stage largely persevered despite COVID-19 and markets suddenly declining. However, the pace of sales slowed as buyers reevaluated offers to account for the newfound uncertainty and potentially declining revenue. Even buyers with a longer-term outlook and stomach for short-term risk were forced to reevaluate as their lender became understandably more conservative. As April ended and nerves had calmed, advisors began picking up where they left off with their deals. Despite a short-term decline in revenue through June, valuations remained consistent with year-end 2019 expectations, climbing 3.3% on average through the first half of 2020 from an average multiple of revenue of 2.72x in 2019, to 2.81x YTD 2020. However, there has been a lasting effect on deal structures, with most deals now containing a clawback feature, and an average down payment of 60% (down from an average of 83% in 2019). Based on Succession Resource Group’s data, 85% of RIA purchases in 2019 used an industry lender, and with the low interest rate environment, SRG expects this number to reach 90% of all deals by the end of 2021. With more lenders every year, increased deal volume, and each lender having unique loan programs, resources such as LendingWell, will play an increasingly important role ensuring advisors find the right financing solution. Beyond 2020 The COVID-19 impact on advisor revenues rebounded much quicker than initially anticipated, which is expected to act as a catalyst for those advisors who were considering a sale at any point in the next 1-3 years. Kristen Grau, CPA, CVA, SRG’s Listing Director, anticipates increased deal volume as early as this summer based 1) COVID-19 and recent market conditions creating unrest with advisors; 2) Increased compliance challenges (Reg BI and the DOLs proposed new standards for example; 3) The graying of the industry and aging cliens; and 4) A lack of succession planning. Looking into 2021 and beyond, SRG expects multiples of revenue or earnings to continue to increase, but at a much slower pace as the market sees a significant increase in smaller practices coming to market. Offsetting this appreciation is the expectation that capital gains tax rates and interest rates will rise, driving up the cost of capital and making the near term the most viable time to exit the business for any advisors looking to maximize value and eliminate uncertainty. Disclaimer This article was first published by David Grau Jr., MBA. The original article can be found here. All rights to the original content are held by wealthmanagement.com.
First Affirmative Financial Network LLC Aligns with Succession Resource Group
PORTLAND, Ore. – Succession Resource Group, Inc. (SRG) is pleased to announce a new strategic partnership with First Affirmative Financial Network LLC, which is a wholly owned subsidiary of FOLIOfn, Inc., specializing in sustainable, responsible, impact investing. Through the new partnership, SRG will expand the available succession resources, expertise, access to tools and information, as well provide reduced fees as a new partner with advisor succession planning. First Affirmative’s partnership with SRG addresses a key strategic need of organizations industry wide – how to raise awareness and provide tangible solutions to help the aging advisor population plan for their eventual transition out of the business. SRG joins First Affirmative’s ongoing effort to inspire action in this area, providing external resources and 3rd party guidance from some of the most experienced minds in advisor valuation and succession planning. Effective December 2016, First Affirmative advisors will begin to see additional education content from SRG on advisor valuation, strategies to build a more valuable practice, lending and financing options, death/disability planning, acquisition strategies and succession planning best practices. The educational content will be disseminated over the course of the coming months in the form of articles and whitepapers, live webinars, recorded webcasts, and in-person presentations at First Affirmative events. The first tangible step taken by most advisors, whether looking to grow through acquisition or plan for retirement, is having their business valued. For this reason, First Affirmative members will be able to access SRG’s valuation service with the partner subsidized rate of 15% reduced fees. According to Danielle Burns, VP of Sales/Marketing at First Affirmative, “We are excited to partner with SRG and provide our network of advisors access to the tools and resources that can help them better serve their clients and navigate the changing landscape of succession and valuation planning.” To support First Affirmative’s ongoing commitment in helping their advisors with succession planning, David Grau Jr., Founder and CEO of SRG, said his firm is excited about the alliance and the opportunity. “First Affirmative and their advisors operate in a unique and growing segment of our industry with responsible investing – something that I am personally passionate about and excited that we will be able to help ensure more First Affirmative practices build businesses that will be here for many generations.” Grau said. “I get advisors are busy running their businesses, our job is to help the advisor engage proactively with managing the equity in their business, then provide turnkey solutions so they can get back to business, but rest easy knowing there is a plan for their most valuable asset.” About First Affirmative Financial Network, LLCFirst Affirmative Financial Network, LLC (“First Affirmative”) , a wholly owned subsidiary of FOLIOfn, Inc., is a leading provider of investment management and consulting services to financial advisors and their socially conscious clients. By integrating a client’s mission and values into the investment process, First Affirmative delivers personalized portfolio management to those who wish to profit from companies making positive contributions to society. For more information on First Affirmative Financial Network, LLC, visit http://www.firstaffirmative.com/ Contact: Danielle Burns, VP of Sales/Marketing | Phone: (877) 542-8583 | Email: danielleburns@firstaffirmative.com About Succession Resource Group Succession Resource Group is an M&A consulting firm serving independent financial service professionals across the country. SRG’s team of experts leverages its industry expertise and best-in-class resources to help registered investment advisors, securities professionals, agents, and accountants manage, grow, and realize the value of their businesses. With decades of experience on the team, Succession Resource Group has helped thousands of clients value, protect, grow, improve, and plan for the sale of their business. Media Contact:Succession Resource Groupmarketing@successionresourcegroup.comwww.successionresource.com