ECHELON Partners Deals & Dealmakers Summit: Insights Recap

Chris Latham, Managing Editor, Wealth Solutions Report

M&A Summit Highlights Include Transaction Trends, Private Equity Perspectives, Debates In Deal Structure And Legal Considerations, And Technology Hurdles

The 11th ECHELON Partners Deals & Dealmakers Summit – which was held at the Ritz-Carlton in Laguna Niguel, California, from August 29 to August 30 – generated a wide array of ideas relevant to wealth management, wealthtech and private equity firms active in M&A.

Panels covered how to increase the value of RIAs, conduct valuations and structure deals, optimize glide paths and liquidity events; as well as addressed transaction trends, legal negotiations, PE opportunities and challenges, CFO views on deal process, the role of technology in M&A, and wirehouse breakaways.

Here is a recap of some of the most pertinent insights that came out of the summit.

Transaction Trends

Achieving scale should be a top priority for any dealmaker, which calls for the firms to be in alignment a year after the transaction closes and to have made significant progress toward integrating their technology stacks, organizational structures, policies and procedures.

This task has become easier over the past two decades as a result of the institutionalization of independent wealth management, which has grown as third-party experts such as investment banks, PE firms and wealthtech platforms have established clear, repeatable best practices for RIAs and broker-dealers.

Other signs of successful deals include a roughly 250 basis point increase in net flows within two years, client retention at a comparable or better rate than before the transaction and high employee engagement scores that can be broken down by specific job functions.

Molly Bennard, CEO, Connectus

“As a seller, figure out your non-negotiables, what you’re not willing to do, and figure out your key priorities, what you want to achieve with the transaction,” said Connectus CEO Molly Bennard. “As a buyer, I personally think that due diligence, especially around people, is the most important diligence you’ll ever do.”

Yet some RIAs are still waking up to the fact that attractive buyers and sellers do much more than simply manage clients’ money. They also help clients build and coordinate their broader team of experts, from CPAs and insurance professionals to attorneys and business managers, as well as create inviting workplaces that recruit and retain top talent.

Well-positioned sellers continue to see high valuations, although it is no longer common for those levels to be detached from fundamentals as was the case during the frothy market of a couple years ago, while buyers are more likely to offer less cash upfront and more equity consideration.

Jeff Dekko, CEO, Wealth Enhancement Group

Sellers must decide the extent to which they will distribute equity to various stakeholders, since if founders keep all the equity and leave that does little to incentivize other key personnel to stay long-term and take the enterprise to new heights. Buyers that measure the increase in value of equity over time can get a long-term sense of how well the deal has worked out for them.

“The best thing you can have, is to have a great future that you love without having to do a deal,” Wealth Enhancement Group CEO Jeff Dekko told the audience. WEG onboarded eight RIAs in the first half of 2023. “That’s the strongest competitive place you can be.”

Private Equity Perspectives

Independent wealth management firms operate in fragmented markets with increasing consolidation. This, along with strong profit margins relative to many other sectors, makes the space attractive for private equity.

PE firms tend to prefer investing in RIAs and broker-dealers that are growing quickly and organically, with high EBITDA and free cash flow. It also helps when targets have a clear differentiator in their business model or value proposition, as well as when a founder possesses asymmetric knowledge of the industry.

Holistic wealth managers – which lead with goals-based financial planning that enables tax-efficient investment management and estate planning – may be more appealing to some PE firms than those that simply strive for portfolio performance, in part because a holistic approach can facilitate higher customer lifetime value relative to the cost of acquisition per customer.

Conversely, RIAs and broker-dealers that need a lot of fixing up may find it challenging to attract PE capital in order to achieve the proper scale. PE firms that do invest in such cases may seek to implement more robust organizational changes. Even so, they often will aim to remain aligned economically with the wealth management firm.

Innovations in PE deal structures for the independent space are making preferred equity, credit facilities, and hybrid financing with convertible debt or convertible equity, more common for wealth management leaders who use the money from PE deals to pay down their firm’s debt, provide liquidity to their firm’s pre-existing investors or to bolster their firm’s balance sheet. Yet some RIAs remain wary of how PE deal structures might alter their business.

Christina Walsh, Investment Professional, Aquiline Capital Partners

“When it comes time to exit, I think a lot of people are worried that private equity is just going to kind of sell to somebody that they don’t want to partner with,” said Christina Walsh, an Investment Professional at Aquiline Capital Partners. “Given that this is a people business, we can’t sell a business without the management team.”

As the number of RIAs overseeing $10 billion or more in assets under management (AUM) has increased, so have the number of PE firms that are willing to pair up with each other in order to invest in them. Continuation vehicles also have gained in popularity as some PE firms have come to regret selling out of fast-growing wealth managers too early.

Family offices, meanwhile, have stepped up as an alternative to private equity capital for RIAs and broker-dealers. For instance, employee-owned Steward Partners Global Advisory, which was responsible for approximately $30 billion in client assets as of April, has received capital from The Pritzker Organization and The Cynosure Group.

M&A Debates

The ECHELON Partners Deals & Dealmakers Summit featured numerous debate-style panels where participants explored opposing stances on key M&A factors where the “correct” answer would depend on the details of a specific real-world deal.

Questions included whether founders and partners in the firm, or just founders, should have ownership to maximize return on equity; taking a firm-managed, or self-managed, approach to advisors and staff is best for acquirers with more than $1 billion in AUM; sellers should, or should not, be able to add the benefits of synergies generated in a transaction to EBITDA; three-year earnouts should be based on revenue or EBITDA; and whether it’s better to partner with short-term or long-term investors.

From a legal perspective, the summit also explored debatable issues related to risk and indemnifications, post-transaction benefits and compensation as well as earnouts.

Sellers usually want to limit their exposure to indemnification, and to the extent there is a known issue, limit the circumstances where the seller must directly backstop the damages. Buyers seek to have protection against a likely or known issue, and to narrow the circumstances where the buyer looks directly to the seller for indemnification while maintaining broad protection.

Sellers whose advisors lack non-solicit agreements are at risk of a strategically important advisor with a huge book of business leaving shortly before or soon after the deal closes. This could lower the firm’s future revenue and either put the deal at risk or hurt the seller’s earnout. Therefore the seller could offer the advisor a profits interest grant or proceeds from the sale of the firm, with a time-based or performance-based component on the equity.

Technology & Valuation

Amit Dogra, President & COO, tru Independence

Innovation, or the lack thereof among technology platforms, generated a multitude of views at the summit. Although both private equity and wealthtech leaders agreed that platforms on the market have a long way to go before they are truly automated to produce efficiencies available in some other sectors, experts diverged on whether integration even exists.

“TAMPs are just a fancy name for advisor platforms that help launch advisors into independence,” said Amit Dogra, President and COO of tru Independence. “The industry has kind of had a misnomer around integrated technology. Technology’s really not integrated. If you have to hit alt-tab on your computer screen to toggle between technology, that’s not integrated.”

Doug Fritz, Founder and CEO, F2 Strategy

This is relevant to M&A because sellers with advanced, user-friendly tech stacks that enable their advisors to achieve scale and work well with support staff can make for stronger acquisition targets, and enjoy higher valuations, than sellers using a variety of outdated systems that buyers would have to slowly transition those teams away from. Even adopting newer technology can be more trouble than it’s worth if it does not accelerate growth.

“When it comes to M&A, and a PE firm is looking to buy an RIA and looking to establish a platform in that RIA as a first purchase into the market, what’s the defensible IP of that platform?” said Doug Fritz, Founder and CEO of F2 Strategy. “Do you have your own custom Salesforce process? Do you have your own custom digital client experience? Is there a workflow that you’ve automated into your systems that make it really unique and great to work with you as an advisor and as a client? In that case, we usually bump up the valuation of that firm, because they’re ready to scale.”

Chris Latham, Managing Editor at Wealth Solutions Report, can be reached at

Related Posts

Sign Up for Our Newsletters