Written By: Matt Durr, E.A., Director of Mergers & Acquisitions
We have been in a bull market for the better part of the last decade, but there are cracks in the foundation. Inflation is rising at rates that have not been seen in my entire life. The government continues to spend while threatening to raise taxes. Margin debt is soaring. Interest rates and bond yields are increasing. Volatility, Vladimir Putin, etc.…
I am not debating whether stagflation is looming or we’re headed toward a recession. Rather, older advisors must take into consideration the impact that a major market decline will have on the enterprise values of their books of business.
Whenever the next long-term correction takes place, AUM will go down, which directly corresponds to fees generated, which directly impacts practice valuations. A correction will also decrease buyer demand and ability to acquire. Historically, all major corrections have taken about six years for market indexes to retrace the value lost from prior peaks. The corrections of 1987, 2000, and 2008 saw index values diminish by roughly 40%.
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Do advisors in their mid-to-late 60s have six years from the start of the next major correction to get their books back to even, let alone additional years to grow their books from the historic highs that we’re currently experiencing?
AdvisorLaw is a one-stop solution for all things M&A-related. Our attorneys and team can handle all aspects of your transaction — from valuation to closing — in one centralized location. There’s no need to engage multiple firms and invite unnecessary cooks into the kitchen.
Given the fact the markets have been cranking, the M&A marketplace is a nice spot for a seller to be right now. AUM is high, valuations are high, and buyer demand is high. Consequently, many of our services are complementary to the seller.
Valuing Your Business
Our valuation tool was developed with a consensus of a top-10, national CPA firm. The tool blends over 35 different data point to estimate the fair market value of wealth management practices. In addition to book appraisal, our reporting provides SWOT analysis, industry comparisons, and more — at no charge. It is the equivalent of Zillow for advisors’ books of business.
From here, we can coordinate an optimal strategy to go to market, advertise, source the right buyer, negotiate the right purchase price, prepare contracts, get the buyer financing, and close the deal. When we introduce the seller to a buyer, the seller receives our representation for free. AdvisorLaw gets paid a finder’s fee from the buyer as a percentage of the gross purchase price. When buyer and seller have already been introduced, AdvisorLaw can provide services to either party, à la carte, on a retainer basis.
If you’re interested in learning more about our M&A services, please give us a call at (303) 952-4025, or click here for a complimentary consultation.
Our Buyer/Seller Services
Our network of buyers is a pretty deep bench. For every seller, there are probably 20 serious buyers. Selling a valuable asset, such as a wealth management practice, in the broader marketplace should yield more competitive offers. Due to the inherent scarcity of practices (the seller’s market), more potential buyers can bid up to value and increase the purchase price. I’m a firm believer that, if you have one buyer to choose from, you really have nothing to choose from.
Even if you’re not planning to exit the industry yesterday or believe the markets have more gas in the tank, at a minimum, it probably makes sense for you to get an up-to-date valuation of your book. You might be surprised at the number you see.
The average financial advisor is 55 years old. Of all currently-active advisors, 40% plan on retiring at the end of the decade. Investment Planning Counsel conducted a study in 2021 that found that only 11% of advisors have a formalized succession plan. You owe it to your clients and loved ones to put together an enforceable continuity plan. AdvisorLaw can help on this front, as well.
In March of 2020, right after Covid shut down the NBA, I had a conversation with an advisor considering retirement that I vividly recall: “I have approximately $65 million in assets under management. Last month it was $90 million.” The Dow tanked close to 30% during the first quarter of 2020.
Today, this advisor has closer to $115 million under management. It was a good gamble for him to hang on, but it should also be a warning sign. The markets always come back in the long run. However, the long run may not be achievable for some advisors who are in the twilight of their careers, and perhaps we are already there. You have likely spent decades protecting and building wealth for your clients. It might make sense to take some of your own medicine and remove some of the risks from the table.
You know your business best and the timeline to exit — but keep in mind that the markets are not going to wait for you. Know when to hold ’em, know when to fold ’em, and know that AdvisorLaw can help on all fronts to ensure that your goals are achieved. Whenever you are ready, we’ll be here.
AdvisorLaw is a trusted source for wealth managers and financial advisors. If you’d like to learn more about our services, please contact our Director of Mergers & Acquisitions, Matt Durr, E.A.
Our consultations are always complimentary.
Matt Durr, E.A.
Director of Mergers & Acquisitions