Advisers seeking a deal should look for a seat at the table

The breakneck pace of mergers and acquisitions among RIAs shows little sign of slowing in the second half of 2022. Driving forces include the desire for growth, a need for succession planning or a preference for letting someone else manage operations. Toss in the additional factors of rising valuations and increased interest from private equity firms, and RIA owners may feel conflicted about which alignment option to choose.

As someone who has worked at adviser-owned and non-adviser-owned firms, I have found the former provide greater flexibility and client focus. Putting client needs first is imperative in an era of fiduciary responsibility. That’s not entirely possible when advisers have two masters — the client and the ownership. Many firms purport to be adviser-centric, but the litmus test is to see who really owns the client relationship.

MORE FLEXIBLE PORTFOLIO STRATEGIES

A recent Schwab Advisor Survey found that 52% of advisers believe investors with long time horizons — Gen X, millennials and Gen Z — will seek more personalization within their investment portfolios over the next five years.

That means that the traditional five buckets of financial planning — investment with stability of principal, income with moderate growth, growth with income, growth and aggressive growth — may be gradually supplanted by highly customized models built with the client in mind.

The five investment models made sense from an oversight, cost management and compliance standpoint — but evolving technology has given rise to many and more nuanced approaches. Individual investment models provide RIAs with differentiation paths to be competitive and successful.

Adviser-owned firms are better equipped to handle multiple investment models. Expanding RIA firms need to create a support system that sets advisers up for success in which professionals can access a full suite of products and solutions to provide personalized client service. A successful firm should practice inclusivity, so advisers know that they have a seat at the table and a role in shaping that professional environment. This approach can be difficult in a non-adviser-owned firm, where a larger entity sets investment strategies without ever meeting the end clients.

AUTONOMY AND EQUITY

The industry currently has two prevailing business models. On one hand, you have the straight consolidators. These tend to offer a “plug and play” proposition that gives independent advisers access to operational resources like tech support, marketing, research and compliance. But often these advisers are siloed and on their own.

The alternative tends to be an enterprise model, which takes a more top-down approach to financial planning. In these firms, most advisers use the same planning models handed down to offices across the country by members of management who have never met an adviser’s clients.

Yet neither of these models offers a great answer for financial advisers who want to accelerate their growth through scale, capital and operational resources. Instead, advisers find they must relinquish their autonomy — and with it, the flexibility that’s helped them grow their existing businesses.

Many adviser-owned firms now have flexible participation structures to help individual advisers best meet their own needs and those of the firm. At my firm, for instance, advisers can choose to have an equity stake or a pure advisory role. Adviser-owned firms can offer:
• full merger or acquisition approach
• sale of a minority stake
• affiliation as an independent financial adviser
• opportunity to join as a W-2 employee adviser.

RESOURCES FOR SCALE

Advisers looking to transition away from a stand-alone business may also find that an adviser-owned firm will let them remain autonomous while offloading more onerous operations and maintenance work.

Adviser-owned firms can provide centralized support, for instance, in the form of C-suite executives who can run the business day-to-day. A strong executive team can help growth-minded advisers who are looking for both scale and a collaborative environment.

Firms should accelerate the business growth of their financial advisers and simplify operations without forcing advisers to sacrifice their independence — which is core to the definition of adviser-centric. While there are situations where adviser-owned firms can lose their path or be lured away by astronomical valuations and quick payouts to ownership through buyouts or an enterprise model, an adviser-owned firm is better positioned to empower its advisers to deliver optimal service for clients.

The relationship any adviser cultivates with their clients is the foundation of their practice. Any firm that wants to help advisers grow should offer leverage and resources, then simply get out of the way.

Arthur Ambarik is CEO of Perigon Wealth Management, a San Francisco-based, adviser-owned RIA with more than $3 billion in client assets.