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 After starting IHT Wealth Management in Chicago in June with six
brokers, Dudash says he will buy four businesses from retiring
brokers in coming months. The acquisitions will boost the assets his
firm looks after to more than $800 million.
The 38-year-old Dudash, and brokers around his age, have a lot of
businesses to choose from. Of the 300,000 brokers now working in the
United States, nearly 35 percent are over 55. Between those Baby
Boomers, and others looking to retire in coming years, some 40
percent of brokers will try to sell their businesses before 2022,
according to research firm Cerulli Associates.
"(Buying) retiring advisors will be a huge part of the business
moving forward," said Dudash, who now has 19 brokers at IHT and said
he gets three calls a week from older advisers seeking to discuss
selling their businesses.
Buyers close to Dudash's age have been in business long enough to be
able to afford to buy a competitor, and they are young enough to
wring substantial income in years to come from the businesses they
are buying.
For brokers born during the Baby Boom -- from the mid 1940's through
the early 1960's -- finding someone like Dudash to buy their
business is an increasingly urgent matter. Just 26 percent of
brokers are in the younger half of Generation X.
With so many older brokers looking to sell to so few younger ones,
wealth management will likely end up being a much more concentrated
industry in the future, with a smaller number of mega-brokers
handling large numbers of assets, industry experts said.
It also means that retiring brokers are likely to get less money for
their businesses the longer they wait.
For the brokers buying from their older counterparts, it's a good
time to get new customers: New clients have become tougher to win in
recent years, as more investors push to cut expenses by managing
their own money, or by getting automated advice from platforms like
Wealthfront or Betterment.
FINANCIERS
It's also a good time for niche banks and private equity firms that
finance these deals for buyers. Live Oak, a bank based in
Wilmington, North Carolina, with about $680 million of assets as of
the end of March, launched an adviser lending division in 2012.
A typical loan to fund the purchase of a senior adviser's business
is about $800,000, said Jason Carroll, who heads the division. As of
April 30, Live Oak had made a total of $175 million in loans. By the
end of May, Carroll expects its volume will top $200 million.
Over the last year, brokers have been able to sell their businesses
for two to 2.5 times annual revenue, if they have desirable
qualities such as younger clients and accounts that generate steady
revenue, Carroll said. An adviser who manages about $75 million of
assets and generates $750,000 of annual revenue could sell his or
her book of business for at least $1.5 million.
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Private equity firm Lightyear Capital, which built Cetera Financial
Group from a series of acquisitions made starting in 2008, sold the
combined business in 2014 for $1.15 billion. Lightyear did not
disclose how much it paid for Cetera's constituent businesses. It
remains active in as an investor in wealth management firms - it
bought a majority stake in the Minneapolis-based independent firm
Wealth Enhancement Group last month.
Banks, historically among the biggest buyers of wealth management
firms, are also showing interest in the deals. In 2014, banks bought
47 registered investment advisors and trust companies, twice as many
as in 2013, according to the mergers & acquisitions consulting firm,
Silver Lane Advisors. In one of the biggest, Canadian Imperial Bank
of Commerce bought Atlantic Trust Private Wealth Management in
Chicago for $210 million.
Prices for brokers' businesses are likely to fall in the future as
clients get older and begin withdrawing money from their accounts.
Most advisers have not prepared to sell their business. Roughly a
third of U.S. brokers have a succession plan, and only 17 percent
have created a binding agreement, according to a study by SEI
Advisor Network.
Many will try to sell only after they realize their business is
depreciating, potentially flooding the market, said Mark Hurley, CEO
of Fiduciary Network, which has bought minority stakes in 17 wealth
management firms.
However, not every broker nearing retirement age can commit to
selling his or her business, Hurley said. Many have trouble letting
go.
"A lot of owners can't get through the grieving process," said
Hurley.
(Reporting By Elizabeth Dilts. Editing by Dan Wilchins and John
Pickering.)
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