Going Independent Means Better Exits For Retiring Advisors Hot

0.0 (0)
Write Review


The story of San Francisco registered investment advisor Sylvan H. Kline Jr. recently crystallized a few of my thoughts on long-term career planning for advisors.


Kline made a fair number of local and even national headlines this week on news that he’d sold his $30 million book to a bigger RIA, Nelson Roberts Investment Advisors, and was now free to retire.


We help a lot of our clients sell their businesses when it’s time to exit the industry. It’s almost certain that Kline got a better deal as an independent operator than he ever would have gotten in the wirehouse.


For one thing, dollar for dollar, the independent model generates higher annual return on client assets.


It’s simple math. Figure $30 million in AUM might generate an average fee of 85 basis points, or $255,000. Depending on the trading environment, that same money in the wirehouse could generate maybe 50 basis points in commissions, or $150,000.


Whether you’re a producer or an institution looking for the best ROA you can get, the independent book simply throws off more cash.


And because the RIA in our scenario owns his client relationships and his business processes, a would-be buyer will pay more for an orderly transition.


I find that independent advisors -- RIAs and independent brokers alike -- can generally sell their AUM for around 220% of whatever income those assets annually produce. In the wirehouse, you might be able to sell at 150% of your payout, which is generally around 43% of production.


So everything else being equal, the $30 million RIA could look forward to a final check of $561,000 when it’s time to sell. The $30 million wirehouse broker might get 18% to 20% of that money.


And that assumes that the wirehouse will let its reps take enough ownership of those accounts to sell them to the buyer of their choosing!


While everyone has to start their career somewhere, I think we’d all rather end it in the place that lets us build the biggest nest egg we can. After all, it’s not just your clients who have to plan for retirement.

This Website Is For Financial Professionals Only

User reviews and Comments

There are no user reviews/comments for this listing.
Already have an account? or Create an account