Dan Seivert's Tips for Wealth Management Firms Looking to Sell

He recommends that potential sellers know how fast or slow they're growing in order to assess their valuation, set a strategy for growth and check if their firm is taking an aggressive enough approach to pursuing growth opportunities.

Since 2010, revenues of wealth management firms have grown at a compounded annual rate of 15%, with rates ranging from a low of 8% in 2015 to a high of 24% in 2011, according to Seivert. (The 2017 growth rate was 20%.) Their assets have been rising while their numbers have been declining.

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Scale is another important consideration for sellers. Seivert divides the wealth management universe into three scale models: small businesses with more than $1 billion in assets; boutiques with $200 million to $1 billion AUM and practices with less than $200 million in assets. "The valuation paradigm is different for each firm."

Buyers are most attracted to firms with meeting these key thresholds: $1 billion AUM, $10 million in revenues and $3 million in profits, according to Seivert. Few firms currently for sale meet those criteria, according to Echelon Partners. Just 3% have $1 billion in AUM and none have $10 million in revenues. Moreover, three-quarters of wealth managers for sale have less than $200 million in assets and less than $1 million in revenues.

In 2017, RIAs accounted for 39% of buyers of wealth managers, and strategic buyers or consolidators had a 42% market share. Bankers, once the largest buyers of wealth managers, now account for just 7% of purchasers ("other" accounted for the remaining 12%).

Looking ahead, Seivert said wealth management firms should expect a decline in valuations of as much as 35% after the bull market, about to enter its tenth year in March, ends. It could then take six to seven years for valuations to recover.