Advisors Have Options as RIA Deal Wave Powers Forward

In the interview with Nash, who was with LPL for 14 years in leadership roles in recruiting, coaching and M&A services before opening Bridgemark Strategies, he lays out options for advisors nearing retirement, including: “to work the business till it dies on its own.” That’s not the ideal choice, he cautions.

Here are highlights of our conversation:

THINKADVISOR: What have been the chief changes in advisor recruiting in recent years?

JEFF NASH: One is a significant shift in the deals. [Some] are now at 100% — and sometimes more — of trailing 12 months’ production.

We’re seeing deals with a time frame of three years, five, seven, and even some of 10 years.

But there’s flexibility around the 10-year deals: The advisor is given a choice: “This is the number at seven, and this is the number at 10. Which do you prefer?”

What’s another big trend?

A new twist on an old trend is firms creating solutions for wirehouse and regional advisors who want to [go] independent but may not want to start their own business.

Increasingly, these firms are trying to attract advisors by [removing] a lot of obstacles like [finding] office space and taking a lease on it, and administrative [functions].

Which firms have the programs?

LPL is doing a lot of that. They have one for a 1099 situation and another for a W-2 situation.

Kestra and Sanctuary are other firms that have programs to become independent [via] a very simplified path.

These newer solutions are an attempt to capture more advisors that may be interested in switching firms but don’t want to be fully independent.

In some cases, the firms will take out and build the space, and even own the lease.

But the advisor owns the practice and the clients.

As a recruiter, what’s your role in these scenarios? 

The role we always play is holistic: consultant to help the advisor learn things they didn’t even know were possible and then evaluate them to make the best decision for their future.

It’s not just looking at the deal but at culture and philosophy, and making sure they’re aligned with the advisor’s goals.

Any uptick in recruiting women?

Very much so. The ratio [to male advisors] is a growing number. On occasion, women will actually get better offers because firms want to recruit them.

But is President Donald Trump’s intention to snuff out DEI programs causing firms to pull back on those?

I don’t think so. The industry is still under-ratioed [male to female advisors], and women make wonderful financial advisors. They want to continue to bring women in and increase the ratio.

Please talk about the trend of mergers and acquisitions among advisories. Will it continue to be as strong?

The whole M&A space is new to recruiting. Some of the transactions are truly off the charts. I don’t see this activity going away.

Last year we moved 100 different teams. I wouldn’t be surprised that over the next five years, half the deals we’re involved in will be connected to M&A.

Why are some practices commanding such high prices? 

First of all, because the business is worth it, [based on] size, nature of revenue, nature of client relationships, if it’s fee based, if it does financial planning, what the team looks like, if it has [both] younger and older advisors, historical growth rate, what the clients look like, whether the firm is diversified, if it has a few very high-net-worth clients.

The better the answers to all those questions, the better the price.

So if the firm has a great growth rate — in some cases, it’s over 30% — great profit margins, great recurring revenues and great client retention, that’s what they’re paying [for].

What can really boost the selling price of an advisory?

The practices getting the best prices have some younger advisors: [The older advisors] can help groom the younger ones and provide liquidity for the senior advisors.

You’ve stated that broadly, it’s “far more costly to not change broker-dealers.” Please elaborate.

Financial advisors will often stick with a firm well past the firm’s usefulness. One of the most common things we hear after they’ve moved is that they feel they should have done it years earlier.

But they were so concerned about losing clients or about the workload [involved]. After they leave, however, they realize neither of those were all that significant.

An analogy is: At your old firm, you’re in a boat and dragging your anchor. When you [become independent], you’re in a boat with a sail; and the wind is blowing.

How is current market volatility affecting advisor recruiting?

That tends to have a short-term effect.

From my [30 years of] experience in the business, I know that during a recession, advisor movement typically increases.

One of the best years ever for that was 2009 right after the 2008 [financial crisis].

Why?

If a lot of firms aren’t making as much money in a recession, they try to become more profitable.

One of the biggest expense items is what they pay advisors.

So if you start cutting advisor compensation, you’re going to stimulate the movement of advisors.

Generally, do older advisors move firms much, or are they just into succession planning and retiring?

There are attractive opportunities for the aging advisor. One, certainly, is to switch firms to try to get some monetization. Another is to sell the business. A third is to bring in a junior advisor.

How can advisors close to retiring maximize their compensation?

One way is to work the business until it dies on its own. You literally milk it to the very end, which is not necessarily the best thing for the client or the advisor.

Another way is to find the right successor to sell the business to. We’re seeing [an increase in] the sales of advisors’ businesses.

If you hang onto the business too long when it’s shrinking, the price will also shrink.

If the business is still growing, the price will be better. One reason we’re seeing such high prices is because the firms that are buying have high prices themselves.