ThinkAdvisor had the chance to catch up with BNY Mellon|Pershing Advisor Solutions CEO Mark Tibergien at the firm’s recent RIA Symposium in Chicago. We got his thoughts on M&A trends, the breakaway movement, RIA affiliations and what RIAs can expect going forward.
Here are excerpts from the hour-long conversation with the RIA thought leader, who writes a monthly column for Investment Advisor magazine.
THINKADVISOR: What merger & acquisition trends in the RIA world do you see?
MARK TIBERGIEN: The volume of M&A transactions, which depending on [various] studies, is between 300-400 a year in this business.
Some of those aren’t literally mergers and acquisitions but the way they count them; as an example they’ll count somebody lifting out of a wirehouse and bringing their business into [another group], which are breakaways. That will count as a transaction and it’s not quite the same. But it kind of is.
You have these strategic acquirers, the financial acquirers and the tactical acquirers. So the strategic acquirers would be firms that are attempting to build a national brand; United Capital would be an example of that.
The financial buyers are those that are amalgamating acquisitions to flip … Their motivation is really not to build a brand but to but to get a return on investment.
Rudy [Adolf, founder and CEO of Focus Financial Partners] would readily admit that he’s a financial buyer. What he’s doing is acquiring a stream of income. They went public with it. But they’re not trying to create a unified brand, unlike what United Capital was trying to do.
The tactical buyers are not serial acquirers; they’ll purchase things because an opportunity arises. There is a fair bit of that going on with just one-off kinds of transactions.
That’s how I look at the motives of the buyers. From the sellers’ standpoint there are several different motives for a large number of them: It’s a liquidity event for the founder and for others; it’s a desire to get to critical mass because they’re too big and too small. And for others the purchase price is just too tantalizing not to want to do a deal.
What would you say to [Market Counsel’s Brian] Hamburger and [Advisor Growth Strategies’ John] Furey’s comments on not discussing price first in merger discussions?
Their advice notwithstanding, it’s usually the first question. They’re exactly correct in their proposition [that] if you’re talking about what’s the price, then you’re not asking … what’s the value?
In fact the missing discussion in all of this is, once the deal is done, what happens? What happens to employees? What happens to the leader with the transition? What happens to the culture of the company? What happens to the brand? What happens to the clients?
I don’t think there has been enough study yet on post-transaction consequences. And it’s an intriguing topic … in this business, because it’s so human-capital driven. And [it's] so personal, both from the client’s standpoint and from the practitioner’s standpoint, that it’s a dynamic that we have to begin to understand eventually.
What’s your sense about the breakaway trend?
It’s a complex question, but let me see if I can answer it this way. The easiest way to define a breakaway is someone who is an employee of a large bank or brokerage firm and they’re breaking away from the restrictions of that parent company.
They’re [also] breaking away from having access to certain financial solutions, from having access to certain technology capabilities, to [now] being able to take control of their own destiny and ultimately to build value in their own business.
The beauty of owning your own firm instead of being an employee is that you get a reward for labor as well as a reward for ownership or risk; if you’re an employee you just get a reward for labor.
It’s a huge leap to go from the security of employment and a brand name to being an entrepreneur. … The choice of RIA breakaways is to join another firm or to create your own firm. [But] think about all the things you have to do.
You have to get a business license. You have to register your business. You have to pay corporate taxes. You have to meet payroll. You’ve got to find a place to lease. You’ve got to acquire furniture. … I don’t think people think about all that’s involved [and if] the reward is worth it. It’s often a big challenge.
Wirehouses like Wells Fargo have added an RIA option — what do you think the impact of that is?
It was inevitable that the large banks had to shift from product sales to advisors. [But often] the language that’s used in the business tends to create more confusion than clarity.