At last November’s Schwab Impact conference in Denver, I ran into a young advisor who had just been named CEO of a big Midwestern RIA. He was still in his 30s, and if any young advisor was up to the challenge of running a business with $4 billion in assets and more than 1,000 clients, I’d bet on this advisor.
He knew he was given a great opportunity, but he also had a chuckle or two about his circumstances. The firm’s founders had cashed out at the peak of the market, and he was now reporting to a group of private equity investors after being hit with a 25% bear market during his first six months alone at the helm.
This advisor was grateful to the firm’s founders who believed in him and rapidly promoted him to the top spot. And since they had built the firm from nothing, he thought they had earned every dollar of the premium price paid by his new private equity bosses.
Being a realist with a long time horizon, he wasn’t particularly concerned about starting his CEO job in the middle of a bear market. No one, not clients nor the new owners nor the employees were going to pin that on him, and he knew enough history to recognize that lots of great businesses are reconceived during times of rapid change.
After the first generation of advisors retired and, in many cases, sold out in 2020 or 2021 at the top of the market, I can’t help but wonder how many next-gen advisors will embrace the challenge with the same enthusiasm as this advisor.
Many of the new entrants to the advisor space are coming from the accounting profession. This has its benefits—one of the most important being that advisors from this space will be well-trained technically. Even if they lack the entrepreneurial flair of yesteryear’s rainmakers, these next-gen advisors probably can sell a large advisory firm’s brand, even if they would struggle to market their own small shop.
How this next chapter of the business evolves remains to be seen. We are only in the first inning.
Many private equity firms have dealt themselves a controlling hand, but how they play it is anyone’s guess. If they overplay and upset advisor-client relationships, they could regret it. Most are smart enough to realize that.
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