More On Legal & Compliancefrom The Advisor's Professional Library
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
- RIAs and Customer Identification Just as RIAs owe a duty to diligently protect their clients privacy and guard against theft, firms also play a vital role in customer identification. Although RIAs are not subject to an anti-money laundering rule, securities regulators expect advisors to address these issues in their policies and procedures.
Mark Hurley created a firestorm of criticism and soul-searching with a paper he co-wrote while at Undiscovered Managers in 1999. Our lead columnist at the time, Bob Veres, wrote that the report--"The Future of the Financial Advisory Business and the Delivery of Advice"--envisions a future "where 50 to 100 large planning shops dominate the marketplace, scattering the smaller one-planner competition into increasingly barren niches."
While things have not quite worked out that way, Hurley, a West Point and Goldman, Sachs alumnus, has written a new paper with his partners at Fiduciary Network, which provides financing to wealth managers looking to sell ownership of their firm. The paper, released on June 14 and called Creating, Measuring and Unlocking Enterprise Value in a Wealth Manager, is a roadmap for those advisors who wish to do just that, though many such wealth managers will not like what they read.
For instance, the paper defines enterprise value as "the economic value that an investor captures from owning the equity of a company. Because wealth management firms have virtually no tangible assets, their only enterprise value is their future (in particular, after their current owners have departed) profits either as standalone businesses or as part of another entity."
In an interview, Hurley said that his new paper argues that of the 19,000 wealth management firms, "18,000 of them have no enterprise value" that would be of interest to a buyer. Moreover, despite the fact that "99% of advisors are looking for a 'slow deer' that will pay them" what they think their practices are worth, they will be disappointed.
Admitting up front that he and his firm are not unbiased in the matter, since they provide financing for advisory firm acquisitions and have made many such investments themselves--"Fiduciary Network is an investor in wealth managers and to date has completed nine transactions"--Hurley suggests that advisors must educate themselves about selling their own firms, since trying to do so on your own is "is like conducting appendix surgery on yourself." Moreover, the paper says that "owners who wait until they try to sell their businesses to become knowledgeable about mergers and acquisitions transactions are potentially easy prey."