The RIA Profit Margin to Weather a Pandemic's Recession
Asset-based fee revenue at wealth managers plunged this month alongside the fastest-ever bear market in response to the novel coronavirus. At RIAs with thinner profit margins, that could mean drastically lower compensation and even cost-cutting.
In 2018, the median operating profit margin for RIAs managing between $100 million and $250 million was 28.9%, net compensation costs. RIAs that managed more had relatively similar margins ranging between 26.4% and 30%, according to Schwab Advisor Services’ 2019 RIA benchmarking study, its most recent annual report than surveys more than 1,300 firms, which self-report.
Some RIAs Vow To Keep All Staff In Place
A number of registered investment advisory firms—including some well-know billion-dollar shops—are vowing to hold on to all of their talent as the coronavirus challenge continues despite anticipating a sharp haircut to revenues.
According to advisors Financial Advisor magazine talked to across the country, retaining staffing is a priority to firms as they ramp up customer service and communication. That’s despite what is likely to be a 30% decrease in assets and revenues for advisor firms for the foreseeable future.
Manage an RIA P&L to Survive Any Market
“If you fail to plan, you are planning to fail.” So said Benjamin Franklin, and his words ring as true today as they did 250 years ago. Right now, though, far too many owners of RIA firms may find their firms vulnerable in a protracted down market.
With one of the greatest bull markets of our lifetime ended, severe economic damage and a protracted downturn are real possibilities. The most optimistic outlook involves a government-backed “V curve” -type recovery, which would essentially insulate most RIAs from long-term revenue declines. Two weeks into the crisis, however, this type of recovery seems less likely by the day.
Focus, TD and Live Oak hit especially hard by coronavirus crash
Nearly every RIA is a privately held company. But if their best public market analogues are any indication, the industry is entering a serious period of financial stress.
Shares of Focus Financial Partners, the KKR and Stone Point-backed buyer and financier of RIAs, have cratered has the coronavirus crisis has roiled US markets. Shares of the company changed hands at $15.47 on the Nasdaq on Tuesday morning, down around 45.2% in March.
Focus locks in interest rate on term loan amid coronavirus crisis
Focus Financial Partners has tweaked its debt obligations as coronavirus anxiety wreaks havoc on credit and equity markets.
The KKR and Stone Point-backed RIA aggregator said Thursday that it had entered into a $400m floating to fixed interest rate swap agreement on its $1.14bn first lien term loan.
Behind Beacon Pointe’s big PE deal
Offering potential RIA sellers equity-only deals just wasn’t enough in today’s cut throat M&A market.
Beacon Pointe Wealth Advisors made only five all-equity deals from 2016 through 2019, while deep-pocketed rivals like Focus Financial Advisors, Mercer Advisors and Wealth Enhancement Group, armed with capital from private equity firms and the public markets, combined for 35 deals last year alone.