FA Magazine July/August 2021 - Page 39

fa ’ s 2021 ria survey and ranking
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 .
cost business . There are very little variable costs in our business . … But the market also went up more than our fixed costs . So profitability in the industry I actually believe is more robust , certainly than it was a year ago at the bottom of the pandemic .”
Thus , he thinks 2021 will be more profitable than last year , which was more profitable than the year before , despite Covid-19 . Bahl & Gaynor hired three people in the months after the shutdown , including a marketing / branding specialist , a senior portfolio manager and a financial planner .
Los Angeles firm Lido Advisors is one of those firms seeking to make strategic acquisitions , and in May the firm announced it had partnered with Charlesbank Capital Partners , a middle-market private investment firm , in pursuit of growth . “ We don ’ t buy companies , we buy people ,” says Lido ’ s chief executive officer , Jason Ozur . “ So bringing in a strategic partner like Charlesbank will enable us to go upstream in our human capital acquisition strategy . … We are their first entry into the wealth management arena .” Lido , based in Century City , has 13 offices across the country in states like Arizona , Florida , California , Texas and New York .
There is fee compression in the industry , Ozur says . “ The cost of running a company , and the cost of compliance and accounting and marketing … and analysts — those costs are going up , which is making it much harder for firms to maintain those types of cost structures . Which is why you ’ re seeing a lot of M & A .” The average age of the execs ( in the 60s ) is likely also fomenting this trend . Ozur says the average age of the partners at Lido is closer to the mid-40s .
The firm came out of the family office space with a strength in alternative investments , but it has lowered its client minimums and is adding things like estate planning and financial planning and tax planning expertise . The firm is considering adding an insurance component as well . “ We are definitely moving more to a full-service model than perhaps five years ago ,” he says .
Lido made a handful of acquisitions of firms or individuals in 2020 , including a firm called Quantum Capital Management and a bond team . Lido had been self-funding these up to now , before it partnered with Charlesbank .
Ozur says the pandemic likely scared a lot of advisors into wanting to sell their firms , because if they ’ ve lived through the financial crisis and then the pandemic , they don ’ t want to lose the opportunity to get their liquidity event . But he says that if firms aren ’ t growing , they are going to be less attractive acquisition targets .
“ You see firms that try to value themselves on a multiple of EBITDA and they come to you with margins of 70 %, which is unreasonable and not sustainable , and so you take a 70 % margin and then you try to do a multiple of EBITDA , the price becomes ridiculous when you look at it on a multiple of revenue ,” Ozur says .
Talent and space
Has the coronavirus made advisors rethink what they ’ re spending on office space and human capital ?
ServiceS Offered
cATeGORy
% OF FIRMS THAT OFFeR THIS SeRVIce In-HOuSe
% OF FIRMS THAT OuTSOuRce THIS SeRVIce
AVG . % OF cLIenTS uSInG SeRVIce WHen OFFeReD
Financial Planning
97.36 %
1.15 %
70.28 %
Alternative Investing
47.78 %
11.04 %
39.63 %
Asset Allocation
95.22 %
0.99 %
95.49 %
Bond Management
63.43 %
13.51 %
55.29 %
Business Consulting
35.42 %
5.93 %
13.44 %
Charitable Counseling
73.97 %
3.95 %
30.74 %
Digital Advice Platform
16.64 %
2.97 %
24.48 %
Equity Management
71.17 %
6.43 %
80.49 %
Estate Planning
64.42 %
18.12 %
56.39 %
Exchange-Traded Funds
77.27 %
6.26 %
76.30 %
Fund Of Hedge Fund Selection / Oversight
22.08 %
5.44 %
22.10 %
Group 401 ( k ) Advice / Sales
52.72 %
4.12 %
13.78 %
Health Care
19.93 %
10.38 %
28.76 %
Hedge Fund Selection / Oversight
25.21 %
5.60 %
21.54 %
Impact Investing *
55.68 %
5.60 %
17.10 %
Index Funds
67.38 %
6.92 %
72.50 %
Institutional Fund Management
36.57 %
3.62 %
39.46 %
Insurance Planning
63.10 %
12.03 %
46.83 %
Manager Selection / Oversight
55.85 %
1.98 %
71.82 %
Mutual Fund Selection / Oversight
80.07 %
2.80 %
83.61 %
Real Estate Investment Trusts
43.82 %
8.57 %
48.41 %
Separately Managed Account
48.93 %
11.04 %
37.04 %
Tax Planning
70.68 %
10.54 %
66.29 %
Tax Preparation
20.59 %
15.82 %
34.98 %
* Category included socially responsible and sustainable investing .
july / august 2021 | financial advisor magazine | 35