Yet keeping advisors from 60 or 70 firms on the same page is no easy task. While a roll-up vehicle like NFP may provide lofty potential returns, the downside can be very unattractive. "If one of 70 firms in a roll-up gets tainted, you get tainted even if you've never met them," Regent Atlantic CEO Chris Codaro says.
Consequently, many long-tenured advisors have avoided making a choice, opting instead to downshift their work schedule and transfer some responsibilities and ownership to younger partners. Many firms are already doing this.
Lou Stansasolovich of Legend Financial Advisors in Pittsburgh has been selling small amounts of the firm's shares to employees for almost a decade. "If I ever wanted to sell the bulk or a lot of my equity, it would be tough to do," he concedes. "Something like this could make it happen."
It's a huge conversation topic inside firms all over the nation. "I have a few stars here, and you want them in this for the long haul and thinking like owners," says Columbia, Md.-based Financial Advantage's Michael Martin. "The employees are the ones who make what I do possible."
Of course, other acquirers still abound. Recently, Martin was approached by a representative of Ken Fisher's Fisher Investments, who offered two times revenues and told him all Financial Advantage partners, prospective partners and employees would be gone in three months. The offer was declined.
So how good and how fair are the FN- and PWM-style deals? Tibergien of Moss Adams calls Hurley's deal "very intriguing." In particular, it's a good solution for Regent Atlantic, where you have wide age disparities between partners. "Milstein's multiples are fair if not more than fair. It depends completely on the depth of the bench," he says. "But David Bugen will need to identify five new shareholder/partners before he retires [in about ten years]."
Typically when a firm gets big, it requires two successors for every retiring founding partner to sustain its growth rate. "It's only recently that advisors have gotten that big," Tibergien continues.
The transactions can work well for the founders, but how about their successors? "For the younger people, is this the cheapest form of financing?" Tibergien asks. "If they could arrange a loan, would they be better off? Equity is almost always the most expensive form of financing."
That's a dilemma about which many advisors probably have counseled clients looking to sell or buy into a business, and the answers aren't easy. Would you tell clients to leverage themselves to the eyeballs in return for the possibility of an eight-figure net worth? To get the highest multiples, Tibergien says Regent Atlantic's next generation must continue to grow the business at 25% annually. His question is: "If you can grow it that fast, do you want to share it? But the appeal of instant liquidity is nice and solves some short-term problems."
What's in it for Milstein and Emigrant, which reportedly is the nation's largest S corporation? It's hard to argue that someone like Milstein, who graduated summa cum laude from Cornell, has both law and business degrees from Harvard and whose family ranks ahead of Donald Trump in the Forbes rich list, is some innocent bumpkin who fell off the turnip truck.