Some not-so-fancy math shows that the value of wealth management companies, meaning broker-dealers and registered investment advisors, has risen dramatically in the past seven years, perhaps as much as doubling what a firm could be worth over that period. That means that the financial advisors and various investors who own firms, from small RIAs to giant broker-dealers, are making out like bandits when and if they decide to sell.
Now for the simple math that underscores the dramatic rise in wealth management firm valuations.
Just take a gander at two deals engineered by LPL Financial Holdings Inc., the first in the summer of 2017 and the second earlier this year. On the surface, they appear extremely similar when it comes to number of financial advisors and the assets those advisors control. But the great difference is the price.
In August 2017, LPL Financial purchased National Planning Holdings Inc., an independent broker-dealer network with 3,200 advisors working with $120 billion in client assets. The initial price tag was $325 million, with a contingent payment of up to $123 million depending on the level of advisors and revenue that moved to LPL, for a total of $448 million.
Jump forward to this February. LPL said it was buying the broker-dealer network Atria Wealth Solutions Inc., with 2,400 financial advisors whose clients have $100 billion in assets. The cost of the deal? An up-front value of $805 million, with up to another $230 million based on retention, or keeping advisors in their place, totaling a little more than $1 billion.
While not an apples-to-apples comparison, the two networks of financial advisors have enough similarities to show that valuations for wealth management firms, depending on the quality
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