97.69 % how Firms ChArge For serviCes
29.16 %
many independent RIAs without any visible loss of productivity in the eyes of many senior executives . Whether it becomes permanent remains to be seen . But the flexible stance of many firms stands in stark contrast to financial services giants on Wall Street , many of whom are ordering all employees to return to the office after Labor Day . One clear takeaway is that it ’ s much easier for a business to track the productivity of 50 or 100 people than it is to monitor tens of thousands of employees .
Covid-19 left a path of human devastation in its wake that will likely change many things , including the way people do business . But there ’ s also a sense that the coronavirus merely hastened trends already in motion in the financial advice industry . Besides the work-from-home trends , RIAs also needed to speed up their tech spending if they had put it off . The rampant consolidation among firms with aging founders meant that more of them were likely thinking of selling , especially after the 2020 stock market rebound gave them an incentive .
The quick market turnaround and a sea of private equity money in the space have sent RIA firms ’
totAl AUm in 2020 By size rAnge
Size Range
44.32 %
AUM Fee |
Hourly |
Flat Fee / |
|
|
Retainer |
numbeR Of fiRmS
58.98 %
Charles Schwab
2020 aum ( billiOnS ) riAs ’ PrimAry CUstodiAns
29.98 %
Fidelity
27.68 %
TD Ameritrade
2019 aum Of Same fiRmS
9.39 % Pershing
% change
> $ 1billion |
321 |
$ 2,493.25 |
$ 2,089.87 |
19.30 % |
$ 500 million < $ 1 billion |
113 |
$ 81.98 |
$ 68.92 |
18.94 % |
$ 300 million < $ 500 million |
66 |
$ 25.81 |
$ 22.08 |
16.89 % |
$ 100 million < $ 300 million |
83 |
$ 17.25 |
$ 14.31 |
20.54 % |
$ 50 million < $ 100 million |
12 |
$ 0.98 |
$ 0.82 |
19.56 % |
< $ 50 million |
12 |
$ 0.28 |
$ 0.24 |
14.92 % |
TOTAL AUM |
607 |
$ 2,619.55 |
$ 2,196.25 |
19.27 % |
valuations rising to nosebleed levels . They are at the highest they ’ ve ever been , says David DeVoe , a mergers and acquisitions consultant with DeVoe & Co . who ’ s been covering the M & A space for almost two decades . He says firms with a billion or more in AUM are typically seeing valuations at almost 10 times cash flow . ( Others report the numbers can go as high as 18 or 20 times cash flow ). Medium size firms of $ 500 million are seeing valuations at six , seven or eight times after rising from five to six times , says DeVoe , as RIA acquirers find sweet deals in this cohort while looking to go upstream . And even firms of $ 100 million have seen their cash flow valuation multiples go up a turn , he says .
The wave of consolidation is evident in this year ’ s RIA survey . Many firms that participated in the survey for more than a decade have been absorbed by giant consolidators , including CAP- TRUST , Toronto-based CI Financial , Mercer Advisors , as well as other national firms like Creative Planning that have entered acquisition world . Mergers of other firms have produced eye-popping growth numbers . How successful these deals are is an open question . In other industries , the verdict on M & A has been decidedly mixed .
Things are happening on both sides of the ledger for firms hoping to remain profitable . Bill Bahl , co-founder and chairman at Bahl & Gaynor in Cincinnati , thinks there will be permanent structural changes in the way RIA firms operate . “ We believe hours worked is higher in a remote setting than it might be in an office setting . If somebody lives 25 minutes from town … when you get ready to get in the car , park your car , get in the elevator , get your cup of coffee , you ’ re basically losing 45 minutes on each side .” That ’ s an hour and a half a day people could be doing client research , he claims . “ People are working at a cadence that suits them . Which in some cases could be 10 o ’ clock at night .”
He says his firm invested a lot in technology last year to support multiple machines that people were using at both the office and their homes . “ So our fixed costs went up ,” he says , “ and the cost to service that also went up because the IT services firm that we use charges us on a per device basis . So the investment management business is basically a fixed-
Advisory Firm ChArACteristiCs caTegORY mean 2020 mean 2019 % change median 2020 median 2019
% change
Number of client relationships |
3,519.74 |
3,239.73 |
8.64 % |
474 |
450 |
5.33 % |
Firm assets per client * |
$ 5,869,999.69 |
$ 5,490,112.22 |
6.92 % |
$ 1,839,177.05 |
$ 1,667,919.44 |
10.27 % |
Overall assets per client ** |
$ 1,226,104.44 |
$ 1,116,824.06 |
10.00 % |
NM |
NM |
NM |
* A comparison of assets per client at each ranked firm . ** A ratio of total assets to total clients at all ranked firms . NM = not meaningful .
34 | financial advisor magazine | JUlY / aUgUst 2021 www . fa-mag . com