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Mega Teams Attract Retiring Advisors' Assets: Cerulli

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Advisory teams with more than $500 million in assets – or “mega teams” – are best prepared to absorb and manage the clients of a retiring advisor, according to new research from global analytics firm Cerulli Associates.

“Close to half of independent advisors retiring within the next five years consider transferring clients to the buyer a major concern in succession planning,” Kenton Shirk, associate director at Cerulli, said in a statement.

Cerulli believes that large, established advisory practices are in the best position to attract advisors looking to sell their book of business or tuck into an existing team.

“These teams are most likely to win acquisitions from retiring advisors because, as a buyer, mega teams can maximize earnouts for a seller,” Shirk said in a statement. “They also have the infrastructure to assume additional client relationships and they are best enabled to provide a seller’s clients with an ongoing positive experience. As broker-dealers (BDs) and custodians consider the risks of mass retirements and successions, they may need to finance internal acquisitions. In doing so, they are most likely to provide resources to those practices best equipped to handle these transitions.”

Cerulli has reported in the past that more than one-third of U.S. financial advisors plan to retire over the next decade.

“While an advisor could have several motivations for wanting to sell their practice or merge with another, many advisors who are approaching retirement are being forced to examine their books of business and prepare succession plans,” according to Cerulli’s research.

Considering the number of advisors that are set to retire over the next decade, this could lead to increasing asset control for the industry’s largest advisory teams – which according to Cerulli’s research already control a “disproportionately large” percentage of market share.

While only 23% of advisors are affiliated with a mega team, they control more than half of industry assets.

Large advisory teams represent 54% of advisor-controlled asset market share, according to Cerulli. By Cerulli’s calculations, these practices manage a combined total of more than $7 trillion.

In addition to retiring advisors, these mega teams are also most likely to attract what Cerulli calls “tuck-ins.” Tuck-ins are advisors who want to go independent but would prefer joining an existing firm over starting a new business on their own.

“These tuck-ins seek to affiliate with a successful practice that offers a solid value proposition to prospective advisors, which might include value-adds such as assistance with transition, back-office support, or access to model portfolios,” according to Cerulli. “Working in a team further enhances practice output for senior advisors. This strategy adds diversity and balance to decision-making, potentially creating a sense of mutually reinforcing accountability.”

The large advisory teams cite succession as a reason for teaming.

“Advisors are now more concerned about building practices with enduring value that will provide a legacy beyond the tenure of the founding principals,” according to Cerulli’s research. “Mega teams view teaming as an opportunity to build this value and create a path for internal succession.”

Smaller teams seeking to win acquisitions will need to adopt a similar approach, Cerulli says.

If smaller firms hope to achieve scale and eventually acquire additional practices, Cerulli suggests that they should focus on “specializing and building breadth and depth of services.”

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