Smaller IRAs were hit the hardest by the coronavirus crisis and ensuing economic downturn. These solo founder advisors, who often wear multiple hats and report their financial statements on an “EBOC” basis earnings before owner compensation, obviously tend to work on smaller margins, and when COVID-19 hit, they were shrunk to a razor’s edge.
The ones who have managed to stay afloat and pay their bills, haven’t been able to do much else. To be fair, the global pandemic hit seemingly out of nowhere and after an 11-year bull market, not being prepared with a ton of extra capital shouldn’t be held against them. Unlike other RIAs, these smaller operations had no one to lean on and no corporate structure to draw from.
Even though markets have rebounded substantially over the past few months, there are still lessons for these small RIAs to learn from the crash. And many have realized that they need a large RIA backstop to be there for them when things get tough. With that in mind, many small RIAs are coming to market in an attempt to take advantage of a seller’s market as M&A sales heat back up.
What Sellers Are Looking For?
Sellers are looking for deal partners that fit their clients and they have to offer career development opportunities, after all, they didn’t step out on their own because they had too many options inside. Obviously, a fair purchase price is expected, but a reasonable deal structure is also needed.
The most important thing they’re looking for, however, might be organic growth and young clients. The wealth management world isn’t getting any younger, that’s for sure, and more and more baby boomers are retiring. That means older clients aren’t earning as much money and are steadily spending it as they enjoy their retirement, as they should. But if a deal partner isn’t gathering new, younger clients, then what’s the point of joining on to an organization that’ll continue to shrink as time goes on?
