Reuters Says "Smart Money" Is Placing Bets On RIA Buyouts; Good News For RIAs But It's Risky Business

Wednesday, November 30, 2011 11:32
Reuters Says

Tags: client loyalty | enterprise value | family offices | M&A | RIAs


In a story headlined “Smart Money Places Bets On Wealth Managers,” Reuters this morning says “private equity investors have set their sights on investment advisory firms, betting they will take off when markets recover and more investors seek unconflicted advice.” It’s good news for RIAs but don’t start counting the days to your retirement just yet. These deals are fraught with risk.

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The Reuters story correctly points to a trend toward consolidation of RIAs and names a few of the firms buying out RIAs. But buying an RIA —and selling one — is far from simple, as we recently saw from the implosion of the Phoenix office of GenSpring.  
Last week, we reported that GenSpring’s Phoenix office has been hobbled by defections, with seven of the office’s nine directors and about 15 staffers resigning in recent months. GenSpring Private Wealth Offices is a consolidator and, powered by funding from SunTrust Bank, has acquired 14 RIAs around the country and rebranded them as GenSpring. In Phoenix, the acquisition of Inlign Wealth Management has gone awry, highlighting the risk associated with RIA buyouts.
Consolidators would be wise to look at GenSpring’s implosion in Phoenix as a case study in how not to buy an RIA. That deal was done despite the fact that GenSpring’s home office did not share the same investment philosophy as Inlign. Inlign emphasized strategic asset allocation and low-cost index investing while the home office in Plan Beach Gardens, Florida was a tactical asset allocator and more interested in active management.
Perhaps buyout experts who reviewed the deal did not consider the differences in investment philosophy to be important, but to the advisors at Inlign it apparently mattered a great deal.
The GenSpring deal highlights the risk that RIA buyouts entail and serves as a warning sign as deal fever now grips the RIA business, as aging owners of RIAs are hitting their 60s and 70s and look to exit.
Consolidators are going to insist on terms that help ensure the assets and advisors of acquired RIAs don’t walk out the door after a purchase, and they’re going to pay more attention to the culture and investment philosophy in the firms they acquire. Owners of RIAs would be wise to do the same.


Comments (1)

This is not news. There have been consolidators running around for over fifteen years in this space. Like most roll ups, they work well for the early people out and the PEG's but for most they end up being a disaster.

If you go down this route beware of who you get into bed with. Most of the private equity deals are unfair to the seller and ultimately will lead you wish you had not done the deal. IE you will end up taking all of the risk and the consolidator will take little or none.

In this case it's seller beware.

Josh Patrick
Joshco0752 , November 30, 2011

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