M&A Frenzy: The Laws of Attraction

A SPECIAL REPORT FOR ADVISORS | OCTOBER 2021

M&A Frenzy: The Laws of AttractionThe most successful RIAs tend to be the most acquisitive.

Eight steps to take your firm to the next level.

2

1

Dear Advisors,

It’s no secret that the independent advisory business is undergoing massive change, but that doesn’t make the statistics any less startling.

DeVoe & Company’s RIA Deal Book for the fourth quarter of 2020 noted that last year was the seventh consecutive year of record M&A activity, with 159 individual transac-tions. Echelon Partners, in its 2020 RIA M&A Deal Report, pegs the second half of 2020 as “by far the most active period in the history of the industry.”

According to Fidelity’s most recent Quarterly M&A Review, deal volume leveled off somewhat for the first half of 2021, with 35 deals representing $40.9 billion in AUM in the second quarter of 2021. “Though not a record,” the report notes, “Q2 still represents a steady rise in M&A activity that has been in motion for several years.” Fidelity says annual deal volume rose 58%, from 83 deals to 131 deals, in the period spanning 2018 to 2020. The represented AUM grew 69%, from $108.7 billion to $183.5 billion.

In the midst of this activity, Barron’s surveyed about 200 of the nation’s best independent advisory firms as part of its 2021 Top 100 RIA Firms ranking project. This intelligence report takes a closer look at that rankings data, paying particular attention to the 42 firms who have submitted in each of the last four years. In aggregate, these 42 firms have $1.6 trillion in AUM (47% of which resides with individuals and families, as opposed to institutions.) In the year ending June 30, 2021, these firms together acquired 57 practices, with a combined AUM of $51.2 billion.

As you’d expect, the best firms are accounting for an outsized share of the industry’s M&A activity, and we’ve supplemented details about these firms with practical, action-able advice from Ray Sclafani, CEO of Barron’s advisory-coaching partner, ClientWise. In addition, this report features Q&As with two of the nation’s best RIAs, Patti Brennan of Key Financial and Marty Bicknell of Mariner Wealth Advisors. Brennan’s is a $1.8 billion firm that is committed to independence and growing organically; Bicknell’s Mariner, at $58 billion, has a reputation as a discerning and savvy player in the M&A market, among other strengths.

This report is the first time we’ve dipped into our rankings data to deliver specific insights around the RIA market. We’d love to hear your thoughts on this effort, as well as suggestions and requests for insights we can deliver in the future. Please feel free to drop us a line at [email protected].

Thanks, and please stay in touch.

Greg BartalosEditor-in-Chief, Barron’s Wealth & Asset Management

First, a note...

2

The big are getting bigger AUM growth at the best firms is soaring, bolstered by both M&A and organic client acquisition

Key FindingsFROM BARRON’S EXCLUSIVE DATA

ON 42 OF THE TOP RIA FIRMS

1

3

Scale is starting to take hold One important sign: firms are able to handle more clients with the same staff

Revenue is up But not as steeply as AUM3

2

4

CA4JPTM0T308UGY

Q17093_CapGroup_Uber_ICan_FP4C_Barrons.inddWalter Medeiros / Phil Talledes Nonefrom by Printed At

NEWS / MAG JOB INFO APPROVALS INKS / FONTS / LINKSPROOF 1

_______ CREATIVE: Allen_______ COPYWRITER: Santiago_______ ACCOUNT MGR: Katie_______ PRINT PRODUCER: Cynthia_______ PROOFREADER: Cynthia_______ STUDIO ARTIST: Phil T

NOTES:

None

CLIENT: Capital GroupJOB NUMBER: CAP BRP Q17903AD NUMBER: Q17903_CapGroup_Uber_ICan_FP4C_Barrons

BUILD RES: 203 dpiFINAL RES: 203 dpi

BLEED: 8.5" W X 11" HTRIM: 8.5" W X 11" HSAFETY: 8.5" W X 11" H

DELIVERY DATE: TBDINSERTION DATE: TBD

INKS: Cyan, Magenta, Yellow, Black

FONTS:Avenir Next LT Com (Demi Condensed, Regular, Demi)

LINKS:Uber_LOBBY_A_CAM_PRINT-0582_4C_n_250d-pi_Dark.tif (CMYK; 339 ppi; 73.74%), Uber_LOB-BY_A_CAM_PRINT-0582_4C_n_250pdi_Light.tif (CMYK; 339 ppi; 73.74%), CG_Ocean_Aper-ture_3Xat100pc_4C_m.ai (167.06%), CG_AF_Pri-mary_white.ai (15.66%)

6-16-2021 10:06 AM

PUBLICATION:

Barron's

33 Bloor Street East, 14th FloorToronto, Ontario, Canada M4W 3H1Main: 416.413.7301Fax: 416.972.5431

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a fi nancial professional and should be read carefully before investing.American Funds Distributors, Inc., member FINRA.

Learn about our investments today at

CapitalGroup.comHome of American Funds

Can I change my client’s “Can I” into “I can”?It’s this very question that, for 90 years, has inspired us to help achieve your clients’ fi nancial goals.

It’s this very question that, for over 90 years, has inspiredus to help achieve your clients’ fi nancial goals.

S:8.5"S:11"

T:8.5"T:11"

B:8.5"B:11"

CA4JPTM0T308UGY




NOTES:

None








6-16-2021 10:06 AM

PUBLICATION:

Barron's







S:8.5"S:11"

T:8.5"T:11"

B:8.5"B:11"

5

CA4JPTM0T308UGY




NOTES:

None








6-16-2021 10:06 AM

PUBLICATION:

Barron's







S:8.5"

S:11"

T:8.5"

T:11"

B:8.5"

B:11"

What’s happening Assets are growing at a fevered rate at the top firms. Organic growth—through market gains and organic client additions—are a factor here, but M&A activity is the over-whelming driver. The 42 firms that submitted data for every Barron’s Top RIA Firms ranking since 2018 accounted for 57 acquisitions in the year ending June 30, 2021, or about one-third of all M&A transactions in that time frame. That translates into a 95% increase in assets in that group since 2018, compared to an average asset-growth rate of just 33% industry wide.

Not all firms are going to participate as aggressively in the M&A market as these top firms. However, the scale the best firms are building is creating a competitive environment that requires all independent advi-sory shops to map out how they’re going to compete in areas like ser-vice offerings, pricing, technology, research and compliance.

What to do Advice from ClientWise Evaluate growthGrowth should be intentional and planned. It should be sustainable, and it should be profitable. The first step in growing is to decide how quickly you want to expand, and why. Next, determine whether the growth your firm has experienced is in line, behind, or ahead of your five-year strategic growth approach. Some questions to ask: What does your ideal client look like and what is the best way to acquire them? What percentage of growth comes from existing clients, and is there a way to expand that? How does your practice attract new clients? M&A can be an attractive means to grow, but only if the combining firms are a good fit operationally and culturally.

Grow with intentionTake care to manage cash wisely, make investments strategically, and make hires that will measurably enhance enterprise value. Know

your various profitability targets, including EBITDA and professional staff expenses. Carefully manage capacity, and know your revenue per professional and revenue per client measures. Finally, keep an eye on what your service model deliver-ables are, as well as what promises you’re making to clients and who will be tasked with delivering on those promises.

Create a five-year planAs an advisory practice scales, it needs to make thoughtful, strate-gic investments that ensure a high level of client care, while simultane-ously driving enterprise value and protecting the business’ margin. Using benchmarks for profitability targets, professional staff expenses and operating expenses is key.

A quick guideline: 100% Gross revenue = [40% Professional staff expenses] + [30% Operating expenses] + [30% Profit]

“Growth should be intentional and planned. It should be sustain-able, and it should be profitable.”

The big get bigger

AUM EXPLOSIONCombined assets-under-management data from 42 firms that submitted for each Barron’s Top RIA Firms ranking since 2018

All data as of June 30, 2021.

1,600

800

0

$ bi

llion

2018 2019 2020 2021

n Overall AUM

n Private Wealth AUM

1Insight

6

What’s happening

Staffing figures provide another window into how aggressively the best RIAs are growing and how the effects of scale are starting to take hold. The group of 42 firms participating in Barron’s rankings grew their staffing by 46% over the last three years—from 8,327 total employees in 2018 to 12,124 this year. At the same time, the number of offices grew by around 50%, to an average of 21 offices per firm.

Overall staffing levels more or less kept pace with the number of clients, but an interesting point emerges when the staffing data gets cut more finely. Specifically, the average number of clients per advisor has risen by 14%, from 59 in 2018 to 67 this year. This suggests that scale is allowing firms to lean more heavily on support staff, rather than advisors, for client service and relationship building. If this trend continues, the challenge ahead will be ensuring clients continue to feel special and supported, even if their day-to-day interaction with advisors wanes over time.

What to do Advice from ClientWise Hire for enterprise valueAdvisors often hire late, after the fact. The team is buried and burnt out; attention to new opportunities outweighs the focus on serving existing clients; the practice leader is so busy working in the business that there’s not enough time to work on the business. Instead, consider hir-ing for where you want the business to go. Thoughtful, strategic, planned growth allows for recruiting, on-boarding, training and developing

professionals who will ultimately drive value for clients, which in turn will drive the value of the firm.

Measure productivity and capacityFirst, identify the revenue-per-pro-fessional number on your team. Then, take a closer look at the revenue per client, per professional. What benchmark are you using to determine how many clients each professional has the capacity to serve? And how much time do you want each professional spending on advising clients, generating new business, and leading within the firm? Next, take a close look at the service levels you are provid-ing to various client segments. It goes without saying that a practice cannot provide the same service offering to a client who generates $5,000 in revenue as it does for one who accounts for $25,000. Yet many firms still suffer from service creep. In the spirit of providing great ad-

vice and service, every single client ends up getting the most compre-hensive service offering the firm has to offer. It’s just not scalable, it won’t be profitable, and often leads to poor service and underdelivering on the clients who expect your best service. Define your service segments and stick to them.

Co-create career development plans for every staff memberYour greatest assets are your people. Invest wisely. More than ever, em-ployees want a clear understanding of their role, their responsibilities, and a vision of their future. Co-cre-ate a professional development plan with each employee. Focus on your future company. Find out what experiences and skills each employ-ee will need to be of greater value to themselves and the clients. Create a mentorship program so that each employee has someone to offer advice and career guidance.

“Define your service segments and stick to them.”

Scale starts to take hold2Insight

PULLING MORE WEIGHTClients-per-advisor data from 42 firms that submitted for each Barron’s Top RIA Firms ranking since 2018.


68

60

522018 2019 2020 2021

-1.0%

2018-19

4.8%

2019-20

9.1%

2020-21

n Clients per advisor (avg)

n Change in clients per advisor (avg)

7

Scale starts to take hold Revenue risingWhat’s happening

As AUM at the top firms has grown, revenue has as well, but not nearly as aggressively. For the three years that Barron’s gathered revenue data (2019-2021), the group of 42 firms grew their collective AUM by 54.5%. Meanwhile, revenue grew by 41.9%. (These numbers are for private-wealth relationships—indi-viduals and families only; institu-tional AUM and revenue have been stripped out.)

Some of this gap could be a report-ing lag. In the year ending June 2021 alone, combined private-wealth AUM at the 42 firms grew 45.4% to $729.3 billion, and revenue num-bers might well catch up as the firms digest their acquisitions more thoroughly. Until that happens, the industry has an interesting re-turn-on-assets trend in the making. In the year ending June 30, 2020, ROA grew 6.7%. Meanwhile, ROA for the year this past June dropped 13%. Average ROA for the 42 firms currently sits at 58 basis points. Another telling metric, revenue per client household, also exhibits slow-ing growth. Through June 2020, it grew 3.5%, but that growth slowed last year to 2.8%.

The industry’s consolidation is still likely in its early stages, and the challenge for firms growing through M&A and for those who have to compete with them is to staff and price their services in a way that will deliver maximum client value, while also supporting ongoing profitability.

What to do Advice from ClientWise

Evaluate your fee structure, pricing modelAs advisors have striven to im-prove their levels of client service, one challenge they face is resetting fees appropriately. If a practice is devoting more staff and resources to client service, a reevaluation of fee structure and pricing is a must. In addition to examining fee levels, it’s also useful to consider structure. For instance, while many advisors charge a fee rooted in assets under management, many are adding retainer fees in certain circumstanc-es. In setting fees make sure to place the cost of running the business front-and-center in your consider-ations. Though fee compression can be an issue, margin compression is a greater threat to most practices. The

expense of running an independent advisory business is on the rise in many areas, from compliance to technology to human capital. Pro-tecting the margin is paramount in preparing for future profitability.

Resegment your client rosterThe best in the business restack and re-segment their client base every six months. Such moves typically include rotating multiple staff mem-bers to new clients, which creates much-needed redundancy and backup and broadens client connec-tions. As advisory practices focus more on high-end service models, clients are learning to expect more. An advisor’s fee should reflect the delivery of additional value in an environment where inflation is real. To hit your profit targets, pay close attention to both the top line and the bottom line.

PLAYING CATCH UPReturn-on-assets data from 42 firms that submitted for each Barron’s Top RIA Firms ranking since 2018.


15%

0

-15

–13.0%

18.9%

6.7%

14.8%

n Change in revenue (avg)

n Change in ROA (avg)

2020

2021

“The best in the business restack and re-segment their client base every six months.”

3Insight

8

BARRON’S ADVISOR INTELLIGENCE REPORT

Phil’s iMac Pro

CAP_BRP_Q16911_Practice_Lab_Barrons.inddPhil Talledes / Phil Talledes Nonefrom by Printed At


_______ CREATIVE: None_______ COPYWRITER: None_______ ACCOUNT MGR: None_______ PRINT PRODUCER: None_______ PROOFREADER: None_______ STUDIO ARTIST: None

NOTES:

None

CLIENT: Capital GroupJOB NUMBER: CAP_BRP_Q16911AD NUMBER: CAP_BRP_Q16911_Practice_Lab_Barrons

BUILD RES: 300FINAL RES: 300

BLEED: 9" W X 11.5" HTRIM: 8.5" W X 11" HSAFETY: 8.5" W X 11" H



FONTS:Avenir Next LT Com (Regular, Demi, Bold, Demi Condensed, Condensed)

LINKS:GettyImages-1040964880-4C.tif (CMYK; 826 ppi; 36.3%), PSD_IMAGE_SHELL_mm_alt4.psd (RGB; 150 ppi; 100%), CG_Primary_w_R_cmyk.ai (16.56%, 16.56%), MAG_MOCKUP_4C.tif (CMYK; 981 ppi; 30.58%)

6-16-2021 1:26 PM

PUBLICATION:

Barrons


SPONSORED CONTENT

What do fast-growing practices do differently?

Maintaining an intentional, strategic focus on getting new clients is vital. Highest-growth practices were 34% more likely to have clearly defi ned acquisition goals.

Marketing matters: The highest-growth advisors had 2 ½ times greater confi dence in their marketing skills. They also used select marketing-based strategies at over 60% higher rates than low-growth peers.

The survey found high-growth practices were more likely to offer services beyond investment management, including estate planning, family education and generational wealth transfer.

Connect across generations: The highest-growth advisors were 8% more likely to have more multigenerational relationships with families. This was a stronger growth factor than having a high percentage of high net worth clients.

Running the practice like a business.

Establish standard operating procedures (SOPs):Having defi ned SOPs — from client onboarding to portfolio rebalancing — was critical for the highest-growth segment.

Make effi ciency a priority: The highest-growth practices measured productivity, effi ciency and return on marketing and technology investments at higher rates.

Leverage technology and models: Growing practices were successful at utilizing select technology solutions and model portfolios at higher-than-average rates.

Always-On Acquisition

Relationship Alpha

Strategic Scale

Download your copy of the Advisor Benchmark Study at: PracticeLab.com/pathwaystogrowth

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affi liated company or fund. All other company and product names mentioned are the property of their respective companies. American Funds Distributors, Inc., member FINRA.

Even 1% can make a difference: The study found that for every 1% of time shifted away from lower-impact client management to higher-impact activities, AUM grew by 3%.

Source: 2021 Capital Group Advisor Benchmark Study

PracticeLab™ from Capital Group has actionable ideas and insights to help grow your practice. Our inaugural Pathways to Growth: 2021 Advisor Benchmark Study surveyed more than 1,500 advisors to fi nd the answer to a crucial question: Why do some practices grow over 60% faster than others? Our research revealed what helped drive growth across all types of practices.

S:8.5"S:11"

T:8.5"T:11"

B:9"B:11.5"

9

Patti Brennan, president and CEO of Key Financial, started her career as

an intensive care nurse, but insists the change to wealth management wasn’t a big leap because the mindset is the same: “As a nurse, I had to know everything about that person’s health to know what was best for them,” says the West Chester, Pennsylvania- based advisor. “Now I have to be just as efficient and effective in understanding client needs.” A major challenge has been doing so while growing rapidly: Brennan manages a team of 30 and nearly $1.8 billion in assets—almost triple the $620 million she managed five years ago.

BA: What’s one of the most important lessons you’ve learned about managing a practice? One person can make a differ-ence, but a team can make a miracle. We really started to accelerate growth when I realized I could delegate. After launching my practice in 1990, I went for 20 years being everything to everybody before I learned—it took me a long time—that I only needed to be all things to my team, and I could let them provide the service and touches to clients.

Can you share an anecdote of how teamwork has spurred growth?Seven years ago, I was at a conference and a woman told me she brought in $50 million in new money. I shared the conversation in a firm meeting. We were averaging $25 million to $30 million in new money a year. Someone said, “If she can do $50 million, we can.”

We set the goal, but I said we can’t grow for growth’s sake; we have to take care of clients—my bar is a 98% retention rate. We had a white board and every week we posted retention and new money. The first year, we brought in $63 million with a 98% retention rate. The team did not know that they were going to get a bonus based on the new money. It didn’t matter if you answered the phone or had an MBA, everyone got the same bonus.

Do you continue this kind of goal setting?Since then, my team has set a new goal every year. This year, our goal was $120 million and we hit it in July, and our retention rate is 99%. The year the firm hit $1 billion in AUM—three years ago—I treated the team to a trip to Jamaica.

Have you had growing pains?As we grew, the question was, how can we maintain quality of service and advice? How do we do year-end planning, keep track of who is a candidate for a Roth conversion, etc. The answer is technology. You have to have systems in place. We automated everything possible and developed systems to track everything from the first phone call with a client to financial plans and relationship building.

A couple of years ago I hired an engineer who is a phenom at coding. Now I have an executive dashboard that pulls in all of our different systems. I know exactly how many calls we’re getting, how many appoint-ments we get from the calls, where we are with new money, the status of financial plans. Notes from the CRM system get posted there. Everyone has access to it. We all know exactly where we stand with clients. Nothing falls through the cracks.

Do you have a succession plan? If something happens to me, clients need to know everything will continue seamlessly. The way this works is I’m Colonel Sanders. My face is on the side of the bucket, but I stopped making the chicken a long time ago. While I’m accountable and I invented the recipe, these are the people—my team—who are making the chicken. To me it’s so much fun that I don’t see myself retiring anytime soon.

What’s your approach to the mergers and acquisitions trend? I’m stubborn. We have worked so hard with our process and technology to be absorbed by a larger entity. I don’t see that happening in the near term.

What’s your view on the market? We are in a secular bull market. Pullbacks are inevitable, but with yields this low, money is going to go to the stock market. The hardest thing is fixed income and I don’t want to take a lot of risk in that area. I’m okay with cash that’s an asset class and there’s a lot to be said about the guarantee. I like international. People are almost forgetting there are great opportunities over there, even though it doesn’t provide the diversification it used to.

BY KAREN HUBE

UP CLOSE

Patti Brennan KEY FINANCIAL | WEST CHESTER, PA

10

BY KAREN HUBE

successful acquisition took years to get from start to finish.

Where is tech innovation still falling short in the RIA space?The tools that touch the client are getting a lot of attention. But one of the gaps is in the back office. If you think about wirehouses, they have one system. RIAs have an account -ing system, a compliance system, reporting performance system, financial planning software system. None of these things integrate together well. Is it on the horizon? I hope it is.

Where are your biggest invest-ments in your practice? I don’t want anyone to think technology isn’t important, but our most significant expense is our people—retaining, attracting and training talent. The best way to focus on the client is to put the attention on the advisor. We surround them with tools and resources to elevate the client experience. We have a team of 50 business development officers responsible for driving clients to our advisors.

When you founded Mariner 15 years ago, was it your vision to expand to become a nationwide firm? Not in our wildest dreams. Our only purpose was to create a firm that puts the client first, advisors second and shareholders last.

UP CLOSE

Marty Bicknell MARINER WEALTH ADVISORS | OVERLAND PARK, KS

BA: How do you determine if a firm is a good fit? When we think about an acquisition it’s a talent acquisition strategy rather than an AUM grab. You can look at a spreadsheet and get a black-and-white answer, but we focus on the individuals inside an organization. We’re looking for firms that have the desire to expand beyond just an investment focus. Investments are extremely important but they’re a component of our value proposition. For example, through targeted acquisitions we have built our own in-house tax department with 115 people who do 8,000 tax returns a year and a boutique investment bank for closely held business owners. By recruiting talent, we built our own trust company and an insurance offering.

How do you handle integrating a new practice? We have a corny way of looking at things: You’re on stage, and the front of the curtain is everything that touches the client. We’re not trying to turn everything into a McDonald’s or a Starbucks, so we don’t mess with that. Backstage is where we integrate so that we have one back-office system, one reporting system, one CRM. Scale is definitely a part of that but more than that it’s for efficiency. If advisors have responsibilities that aren’t client- facing activities, that means they’re

wearing multiple hats, so we try to remove the non-client facing hats so the focus can go entirely to the client. We have a team of four individuals who escort our acquisitions through the onboarding process. They are the bridge between the acquisition team and all departments—operations, finance, technology, compliance.

How important is culture assimilation? We spend a lot of time talking about culture. Our culture is to make sure everyone realizes their job is about the client and about each other being good teammates and helping every-body perform better. One thing I tell the entire organization as frequently as I can is that culture is top down, but policing it is bottom up. I view it as everyone’s responsibility to raise their hand if they see something that doesn’t fit with our culture. We can’t fix something we don’t know about.

What are the positives and negatives of the RIA M&A trend? It’s no secret the RIA community is aging, and about 90% of RIA firms are below $1 billion. Consolidation allows for the next generation to continuously serve the client. There are a lot of firms north of $5 billion that can bring resources smaller firms don’t have. Consolidation also drives innovation. What’s negative is the pace. We’re seeing acquisitions happening in 90 days now. Our most

“One thing I tell the entire orga-nization as frequently as I can is that culture is top down, but policing it is bottom up.”

Marty Bicknell, CEO and president of Mariner Wealth Advisors, has been riding the M&A wave since it began gathering momentum ten years ago. The Overland Park, Kansas-based firm has acquired 30 practices ranging in size from $300 million

in AUM to $5 billion. Its recent deal for AdvicePeriod brings together a pair of former Barron’s Top 100 Independent Advisors—Bicknell and AdvicePeriod founder, Steve Lockshin. Including eight deals finalizing in late September, Mariner has 500 advisors in 60 locations, up from 100 advisors in 20 offices five years ago. Assets under advisement have grown to $58 billion, up from $15 billion.

11

Report Consultant: Ray Sclafani, ClientWise (Barron’s exclusive advisor-coaching partner). Contact ClientWise to learn more about how they collaborate with advisory firms and firm leaders.

800-732-0876 [email protected] Harbas, Director of CoachingRay Sclafani, Founder and CEO

Barron’s Wealth & Asset Management group is a division of Barron’s Group that develops content, events and tools for advisors to improve outcomes for clients and grow their practices. If you have questions or comments on this report, please email [email protected].

Executive Editor: Matthew Barthel Editor: Eileen ChoData Consultant: Seth RedlusArt Director: Sandy Ng Illustrator: Sébastien Thibault

© 2021 Barron’s Group & Dow Jones & Company, Inc. All rights reserved. BA_InRep_101521

Documents

M&A Frenzy: The Laws of Attraction