Despite market turbulence and the constraints imposed on society by the pandemic, now is a good time to sell a financial advisory firm, according to Stuart Silverman, president of Bluespring Wealth Partners.
“Valuations are high and capital gains taxes are low,” Silverman said in a recent interview. Bluespring Wealth Partners is an RIA acquirer and succession planner based in Austin, Texas, that was created a little more than a year ago by the parent company Kestra Financial.
“The mergers and acquisitions space is very active right now, and we think the activity will continue and will even grow,” Silverman said. “It looks like the last quarter of 2020 will hit a record high” for firm sales. “Covid-19 has actually acted as a wakeup call for firm advisors, who may not want to go through another market correction.”
Many firm owners are approaching retirement age. “Because of the demographics, there is a need on the part of many firms to make a move soon,” he said. Firms have grown in value and, because they generate recurring revenues, the firms are now worth millions of dollars, he added. Capital gains taxes are likely to increase in the future, so selling now is advantageous.
DeVoe & Company, a consulting firm and investment bank serving the RIA market, reported last month that mergers and acquisitions among registered investment advisors had hit a new high for the quarter even before the third quarter of 2020 was over. Other potential deals in the pipeline for the end of September were expected to drive the numbers even higher. Thirty-six M&A transactions were completed with one week left in the quarter, which topped the 35 deals done in 2020’s first quarter, which had been the highest number of transactions in a quarter since DeVoe started reporting the results in 2013.
Bluespring usually buys larger RIAs or super OSJs and then brings in smaller firms to create mega-offices. The firm has completed six acquisitions so far since its creation and has more in the pipeline, Silverman said. Other firms can take advantage of the same circumstances that are driving BlueSpring.
“By creating large firms, clients get the continuity they need and they get a team of experts to help them,” Silverman said. “BlueSpring is setting up companies to last in perpetuity, so they can serve multiple generations of clients.”
There is adequate private equity available to support the continued increase in M&A activity, he added.