He added that the buyer’s questions are now: “How much do we pay up front? How can I reduce that? How can I tie the subsequent payout to earnings overall? How do I put the motivation back on the firm that’s selling?”
There’s a range in multiples, Slater said, and those sellers who can sell at the higher end of the range are going to be easier to integrate into an aligned model of a buyer.
This type of firm “already has their data in good shape for the clients and how they operate," Slater explained. "It is able to demonstrate that they have good processes. It’s not going to be that the buyer has to come in and do a lot of work to bring them up to speed. There are a lot of firms out there that have underinvested over time in their platforms, and while there are going to be buyers out there for them, if they haven’t kept up they aren’t going to be attracting the same kind of multiples and the same kind of interest from some of the better buyers out there.”
Ron Carson of Carson Wealth in Omaha, Neb., another acquirer of RIA firms, said how much you fetch in a deal depends on how single-dimensional you are. He noted that he offers much less for one-trick ponies who do only one thing like portfolio management.
“It goes back to what are you getting when you buy,” Carson said. “Are you getting an advisor who held himself out as a portfolio advisor PM, or are you getting a real capable firm that does taxes, estate planning, tax planning, income planning, legal documents, asset management … all of that stuff. That’s where the market has gone. People want to have an Amazon-easy experience.”