Deals involving the biggest RIA firms are dominated by private equity firms. But being owned by a PE firm comes with challenges.

PE investors are attracted to the RIA space for its high returns—which are far higher than they are for other businesses, said Dan Seivert, chief executive of Echelon Partners, at the firm's Deals and Deal Makers Summit in Newport Beach, Calif.

Average returns for PE firms have fallen to about 10% per year, Seivert said, but RIA deals have been producing returns in the 40% to 50% range.

In fact, about 61% of $1 billion-plus RIA deals are being done by private equity firms, said Carolyn Armitage, managing director at Echelon Partners. “That's pretty dramatic.”

(That number excludes an outlier—Principal Financial Group's acquisition of Wells Fargo's $827 billion-in-assets retirement plan unit in April.)

Private equity firms have the most resources, but also put the most financial restrictions on the RIA firms they buy, warned James Gold, chief executive of Steward Partners Global Advisory.

There are some good private equity firms entering the space, but a lot don't yet understand the industry, added Larry Roth, managing partner at RLR Strategic Partners, a consulting firm.

RIA firms considering a sale to a PE firm need to be prepared to see ownership changes when private equity players look to liquidate after five years.

But that five-year plan can become four years or sooner if a PE firm finds a buyer, Roth said, and “they prefer a three- to five-minute hold,” he joked.

Meanwhile, an RIA portfolio firm may find it difficult to make longer term investments in the business if PE owners are a few years away from selling out, Roth added.

First « 1 2 » Next