TIbergien argued that advisors are prepared to exit.
“People are learning the psychology and relationship with money, and their relationship with other people, are foundational and fundamental to whether or not they’re going to be examples of legitimate advisors that people are going to recognize,” said Tibergien. “As far as financial health is concerned, from the last ‘Great Recession’ to now, it’s been an incredible time for people in the business.”
Tibergien said that sellers also fail to create their own sense of purpose beyond their businesses.
While some advisors, particularly those serving high-net-worth and ultra-high-net-worth clients, may aspire to unrealistic levels of wealth and achievement, advisors usually have financial goals that are in line with their clients levels of wealth, said Tibergien.
“I think there are people in this business who are continually chasing a dream,” said TIbergien. “Many of these people compare themselves to others, and that means they will very rarely be fulfilled financially or emotionally – that’s perhaps the psychology behind our business and why people are attracted to it.”
Are valuations appropriate given future growth and income opportunities?
Seivert said that for the most part, firm valuations are out of line with future opportunities, especially in the lower end of the market.
“If you look at the lower market, under $200 million, there are far fewer buyers in that market, a ton of sellers, and the risk of the business model is viewed as being quite a bit higher,” he said.
In the upper echelons of the RIA M&A market, the firms’ valuation multiples are usually too low relative to their growth, said Seivert. “If you look at how great buyers are doing after the deal, for the most part, they’re killing it,” he said.
Tibergien said that since fair market value is determined as an agreement between a fully informed, willing buyer and a fully informed, willing seller, valuations are almost always in line with where they shouldbe.
“Nobody is more informed of the facts than the sellers in this space, and they probably think they’re getting a faiir value,” said Tibergien. “Clearly, the buyers do as well.”
At most firms across the industry, Tibergien said that cash flow “remains healthy” but that there’s an element of rising risk caused by so many clients moving into the decumulation phase of their lives and uncertainty regarding future wealth transitions.
The debate has been a regular occurrence at Echelon’s Deals and Dealmakers summit for nine years, said Seivert.
“It’s a great tradition we have had over the years, and we’re really excited we were able to continue this in a different format,” said Seivert.