The North American wealth sector has its share of challenges, and also opportunities for ambitious advisors seeking independence and their own way forward. This creates a need for specialist players who can guide those trying to break away and recast their careers.

Independent broker-dealers are having to embrace the RIA model and upward price pressures are driving change in the US wealth sector, a co-founder of Advisory Services Network says. 

This news service regularly reports on the volume of M&A and corporate activity that goes on across the wealth management spectrum. Among the drivers is cost: the need to obtain economies of scale via merger, partnership or sale to pay for new tech, staff and meet compliance demands.

A theme associated with this trend is advisors wishing to set up on their own, or “break away.” However, they often find that they need resources from outside providers, which they previously had in-house at their former workplaces. And, despite the shenanigans about the US Regulation Best Interest regime, there is a continuing shift toward the fee-based RIA model. 

Price pressures are also creating a need to scale up, adjust and seek outside help.

“Over the last several years, and particularly since the pandemic, we have seen significant price increases from the vendors that serve the investment advisor community,” Tom Prescott, co-founder and managing member of ASN, told Family Wealth Report.

“The price increases have affected many areas, ranging from tech stack options, software, enterprise and operations, and cyber bonds, to employee and benefits. These increases have put pressure on the pricing structure and operating margins,” he said. 

ASN, which supports wealth advisor firms’ “path to independence,” works with businesses below the $300 million AuM bracket, he said. “Our job is about bringing in high-end services to that level.”

Business is increasing. ASN is expanding several of its offerings, including succession planning and creating an internal merger and acquisition unit for those advisors that wish to buy practices, as well as those who are planning to sell their practices and retire, Prescott said. “It makes little sense for our advisors to look for outside vendors to assist with these efforts.”

Prescott, who began his career in financial services in 1980 with Lehman Brothers Kuhn Loeb, carries considerable experience in the financial services industry. In 1987, he formed Prescott & Associates, which would later become Mainstay Capital Markets Consultants, to provide consulting services to broker/dealers, investment advisors, banks, money managers, pension plans, corporations, and securities attorneys. In 2010, he and the principals of Mainstay founded ASN. 

Private equity – hero or not?
A point noted for some time has been the involvement of private equity. At a very large end of the spectrum, Clayton, Dubilier & Rice a PE firm, completed its purchase of Focus Financial in August 2023. 

There are reservations about the wisdom of PE involvement, given that such investors typically have a three to five-year timeframe for reaching an exit on a deal, which may not align with the hopefully long-term mindset that wealth management ought to demonstrate. (Of course, much depends on exactly how such PE investment is handled, whether there is a blend of owners and conditions, and so on.)

ASN’s Prescott thinks that private equity has its place if used sensibly.

“There are firms that need capital to fuel operations or growth, and I certainly don’t see private equity as a bad thing. Firms looking for capital for their current operations or growth plans need to take an in-depth look at the capital source or private equity firms. You must look at their management, corporate structure, timelines, prohibitions, and intangibles that are inevitably part of these deals or transactions. We find that good research and due diligence make for good partnerships and relationships,” he replied

Much depends on whether a private equity buyer/investor into a wealth firm is in it for only a few years, and what the terms are, he said. 

“It [private equity] has helped fuel a number of firms and their growth or acquisition plans,” Prescott said. "Transparency is important [about private equity backing]. If you are a representative in one of these firms, you need to know, and clients need to know.” 

Helping hand
Prescott said wealth managers seek out his firm for help and support. Potential clients seek the tools, brand and capabilities that typically come from a large business. 

One of the benefits of using ASN, he said, is that it helps a wealth advisory group build a brand and get established. 

There’s a lot of business in motion. The work ASN does also comes at a time when a number of advisors are readying for retirement and planning to transfer their businesses. 

“There are lifestyle managers who want to keep working but not at a large firm and those who want to retire,” Prescott said. “I still see this as a relationship-driven business.”

Asked about specific services, Prescott said ASN does not have an in-house tax advisory capability. 

“Technology is an important part of any advisor’s practice, including those who are seeking independence. ASN provides a robust tech stack that empowers and supports our affiliated representatives, as they serve their clients. ASN is multi-custodial. We also have relationships with Fidelity, Schwab, Pershing and Goldman,” he added.