The rising valuations of advisory firms and industry challenges running the gamut from the pandemic to the threat of new rivals were taken up by executives from Charles Schwab Advisor Services, Mercer Advisors and other firms during the online DeVoe & Co. M&A+ Succession Summit Monday and Tuesday.
Here are eight key takeaways from a couple of the Summit sessions ThinkAdvisor viewed:
1. Rising valuations are being driven by the large number of strong buyers.
“There’s more buyers today than there ever has been and there’s more capable buyers, and so when you have many seeking few there’s a natural tendency for price to go up,” Jon Beatty, COO of Charles Schwab Advisor Services, said during the “State of the Industry: Perspectives from RIA Industry Leaders” session that closed the event Tuesday.
The “quality of buyers” is what is driving these rising valuations because the firms buying today are “well-run organizations” that have “continued to evolve” and are more “sophisticated” than they were several years ago, according to David DeVoe, founder and CEO of DeVoe & Co.
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2. Advisory practice owners really need to start succession planning.
All of the executives agreed on the need for advisory practice owners to start succession planning before health emergencies and other issues happen.
One key issue is many of them are afraid they won’t be involved anymore if they sell, Tim Kochis, special advisor at DeVoe & Co., noted. “People can work much later” into their lives today than they could in years past, but that doesn’t mean they can’t migrate leadership and management responsibilities to others at the firm while they are still active, DeVoe said.
And, as moderator Brian Hamburger, founder, president and CEO of MarketCounsel, pointed out: “Those conversations never get easier.”
3. Do an internal assessment before rushing into an acquisition.
Many owners of advisory firms think they want to acquire, but decide against it after they look further into it because they find it overwhelming and too complicated, according to DeVoe.
“I encourage anyone who’s contemplating going out and making acquisitions to start by [conducting] an internal assessment” first, he said, suggesting they ask themselves if they’re good at organic growth. “If you’re pretty good at that, depending on how big you want to get and how quickly, it might be better to invest more and more energy into that,” he advised.
4. Smaller advisory firms don’t necessarily have to invest in AI and other expensive technology.
Small and midsize firms can thrive without access to artificial intelligence, big data and other tech tools right now, according to Kochis, who noted: “Technology will become, as has always been the case … less and less expensive. It will become ubiquitous, available from lots of different sources. The custodians will come into play to provide a lot of that functionality to their clients.”
Five years from now, almost all advisors will have the tech capabilities of the larger firms, he predicted.
“Tim is absolutely right,” Beatty said, adding: “The cost of that [tech] will come down. Just like any moon shot, the technology gets cheaper when it comes to the consumer so there will be a trickle-down effect, for sure.”