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Hosted by Financial Advisor Coach, Ray Sclafani, "Building The Billion Dollar Business" is the ultimate podcast for financial advisors seeking to elevate their practice. Each episode features deep dives into actionable advice and exclusive interviews with top professionals in the financial services industry. Tune in to unlock your potential and build a successful, enduring financial advisory practice.
Ray Sclafani (00:00.366)
Welcome to Building the Billion Dollar Business, the podcast where we dive deep into the strategies, insights and stories behind the world's most successful financial advisors and introduce content and actionable ideas to fuel your growth. Together, we'll unlock the methods, tactics and mindset shifts that set the top 1 % apart from the rest. I'm Ray Sclafani, and I'll be your host.
Six critical &A insights from billion-dollar wealth managers. For a long time, steady growth has been the norm for wealth management businesses. Over the past decade, the capital markets alone have driven revenues among fee-based wealth managers. However, the recent surge in &A activity among billion-dollar firms has pushed the entire industry into unprecedented territory. July 2024,
saw 23 RIA &A transactions with about $104.5 billion in acquired assets. That's a 21 % increase compared to the prior month and a 153 % jump in acquired assets. It was the strongest July for &A on record. Now, that's just the transactions that were reported. While driven partly by this aging advisor population seeking to extract liquidity as they exit,
A great deal more ignites this influx of deals and the deeper trends and dynamics at play provide essential insights into the industry's current and future state. So let's take a closer look at six critical insights that lay underneath the surface. First, the rise of mega deals, a strategic shift towards scale. One of the most significant developments in 2024 has been the marketed increase in mega deals with the wealth management sector.
These are transactions involving firms with over a billion dollars in assets under management, and they're becoming more common as acquirers look to achieve scale, expand services, and solidify their competitive positions. According to RIA M&A guru, Dave DeVoe, these mega deals are driven by more than just the desire to grow assets under management. They're part of a strategic shift where firms seek to acquire the capabilities
Ray Sclafani (02:19.928)
to serve increasingly complex client needs and expand into new markets. It's a trend that indicates a broader industry move toward consolidation, where the focus extends beyond acquiring more assets to building comprehensive, scalable platforms that efficiently and effectively deliver a broader range of services. This is a clear sign that the &A landscape is becoming more competitive, with larger, more sophisticated players dominating the space.
So you'll need to carefully consider how your firm can effectively scale to remain competitive or alternatively better position your business strategically as an attractive acquisition target. private equity's dominance. This is a double-edged sword. Private equity has become a dominant source in wealth management &A, driving a significant amount of all activity and creating a more sophisticated and competitive &A environment. These firms not only provide capital necessary for acquisitions,
but also bring operational expertise and strategic direction to the firms they acquire. Private equity's involvement has also increased valuations, making it more challenging for smaller firms to compete. For those on the sales side, however, private equity buyers generally offer attractive valuations and the operational support needed to take the business to the next level. The trend presents advisors with both opportunities and challenges. On the one hand,
PE offers an attractive exit strategy with potentially lucrative terms. Conversely, the competitive power of private equity can make it more difficult for independent firms to scale or align themselves with strategic partners successfully. Third, valuation pressures and the importance of strategic fit. Valuations in the wealth management sector remain robust despite economic headwinds. Devo's RIA Dealbook Q2 2024 notes,
that high demand for quality firms and a scarcity of top tier acquisition targets keep valuations high. This situation forces acquirers to become more strategic in their choices, focusing on firms that enhance their current offerings and align with their long-term growth objectives. The focus on strategic fit's critical. Firms that align with the acquirer's strategic goals, whether through complimentary services, a solid client base,
Ray Sclafani (04:43.158)
or even technological capabilities, well, these firms are more likely to command a premium in valuation. Simply having a profitable firm is no longer enough. It would be best to position yourself as a strategically valuable partner to attract top dollar in today's marketplace if that's the game you're playing. Number four, technology integration as a value driver. In today's digital age, technologies become an increasingly critical factor in determining
the success of &A transactions. The Echelon Partners Q2 2024 &A Deal Report underscores the importance of technology integration and driving operational efficiencies and improving client service. Firms that have successfully integrated advanced technology platforms are not only more attractive acquisition targets, but also tend to command higher valuations. Simply put, investing in technology is no longer optional.
whether through advanced CRM systems, digital client portals, automated investment platforms, AI, firms that leverage technology to enhance their operations and improve efficiencies are better able to attract interest from acquirers looking for scalable, efficient operations. Number five, specialization and niche markets. This is the new frontier. One of the more exciting trends noted by Echelon
is the increasing focus on specialization and niche markets within the RIA space. Firms that cater to specific client segments such as the ultra high net worth or particular industries or professions, well, these firms are becoming highly attractive acquisition targets. This trend aligns with a broader industry movement towards differentiation where firms seek to stand out by offering tailored services that address the unique needs of highly focused
client groups. This trend provides a clear path to differentiation in an increasingly crowded market. By focusing on a niche and developing specialized expertise, you can create a unique value proposition that not only attracts new clients and drives growth, but also makes your firm a more attractive &A target for larger firms looking to expand their service offerings. Number six, the entry of long life capital partners.
Ray Sclafani (07:09.324)
This is the game changer in wealth management &A, and it's my view that more and more firms will be seeking long life capital partners. These kinds of partners are new and increasingly significant &A players. They are quickly reshaping the wealth management industry dynamics. Rather than short term profits or a five to seven year target where most PE firms want to play, these long term patient capital investors
are more focused on sustained strategic growth over decades. It's an approach that adds a new, more durable dimension and may align well with your firm's need for stability and support in weathering market cycles. Let me offer a couple of interesting notable standouts. Fisher Investments, one of the most prominent world's independent investment advisors, recently attracted a substantial investment from the Abu Dhabi
Investment Authority, ADIA. This is a clear indicator of the allure of established wealth management firms to sovereign wealth and long term capital investors. This partnership underscores the value of aligning with investors who aren't just seeking quick returns, but are committed to the long term growth and success of their investments. Similarly, Salmon's Financial Groups acquisition of Rob Nelson's North Rock Partners
An insurance holding company known for its long-term capital approach further proves that firms focusing on legacy and sustained client relationships are becoming prime targets for long-life capital partners. It signals a shift in the &A landscape where firms demonstrating long-term value and stability are increasingly attractive to patient capital investors.
One other of these patient capital investors is immigrant bank. Liz Nesvold is vice chair, leading a portfolio of investors into these kinds of high growth RIA firms is a clear signal that patient capital, long life capital partners may be this evolution of where things are headed. All of these trends are combining to reshape the industry, making it more competitive and complex.
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understanding these dynamics will be crucial for long-term success and sustainability. So whether you're looking to grow your firm through acquisitions, considering selling, or simply aiming to remain competitive, you must stay informed about these evolving trends. By aligning your business strategy with them, such as focusing on strategic fit, investing in technology, considering market specialization, growing your firm, remaining competitive, well, you'll be better positioned.
to make sure your firm is taking advantage of these kinds of new opportunities and access to capital. Strategic, well-planned &A will continue to shape the future of wealth management. The challenge is to survive in this environment and then ultimately thrive by understanding and capitalizing on these critical trends. The firms mentioned in this episode, there will be a link in the show notes so you can take a look at Emigrant Bank, Echelon Partners, Dave DeVos Organization, Liz Nesvold.
These are just a few examples of great firms, great leaders in our industry that are really making a difference in reshaping the industry that we know. Here are five open-ended coaching questions that I'd encourage you to discuss with your leadership team. In each of our episodes, my intent is to provide some industry overview, some insights, some content, but then ultimately make it actionable. And in doing so, I hope that these questions
serve as table talk for your executive leaders and your next generation leaders. And I think you'll find this really helpful. So, first, how do you see the trend of mega deals in wealth management affecting your firm's long-term strategy? And how will your firm continue to grow its enterprise value while these mega deals drive up multiples? What steps could you take to position your firm effectively in this evolving landscape?
Okay, second, with private equity becoming increasingly dominant in the &A space for RIAs, what opportunities or challenges do you foresee for your firm? How might you leverage or even mitigate these dynamics to your advantage? Third, giving the rising importance of technology integration in &A, how do you assess your firm's technological capabilities? What investments or improvements could enhance your firm's attractiveness to potential acquirers? Number four,
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How might your firm identify and capitalize on specific niches as the wealth management industry shifts towards specialization and niche markets? How can you develop expertise that differentiates your firm and creates long-term value? I'd encourage you to also, by the way, when you're thinking about niche markets and specialization, go back and look at Mark Hurley's white paper, Welcome to the Jungle. You'll find that in the show notes as well.
and combined with Fidelity's Wealth Management &A Transaction Report as of July 2024, I think some of these insights that I've mentioned previously, along with a couple of these resources could be valuable when you think about niche marketing and specialization. And then our last question to consider with your leadership team, how could you improve your organic and inorganic growth strategy with the exception of &A? Regardless of the &A movement, when you think about growth,
How are you bifurcating your strategy? Take out the capital markets, take out acquisitive growth and bifurcate organic and inorganic, treat them separate. What are you doing to do the jungle hunt and to grow the revenues of your organization, bringing new relationships and new revenue to your firm? And so how will you think about the improvement of your growth strategy? Well, thanks for tuning in and that's a wrap. Until next time, this is Ray Sglafani.
Keep building, growing, and striving for greatness. Together, we'll redefine what's possible in the world of wealth management. Be sure to check back for our latest episode and article.