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Is Your RIA Ready to Sell to a PE-Backed Insurance Broker?

Overview

One of the most common responses we hear from wealth managers about the boom in insurance broker interest in the RIA space is — “Really? Someone is interested in buying my business?” The answer is a resounding “Yes.” In fact, insurance brokers have now become the most aggressive buyers for RIAs and wealth managers, and the trend is growing, but why?

PE-backed Insurance Brokers Are Motivated and Ready to Buy

Insurance distribution or brokerage companies have been the darling of private equity (PE) investors for the past decade, often generating up to 3x returns on invested capital for PE investors. Most recently, a number of forward-thinking insurance broker platforms started to expand into the wealth management world by acquiring RIAs and wealth management platforms.

 

When one leading broker makes an acquisition, it doesn’t take long for others to follow. More of the industry is ready to pursue RIAs — so much so that now nearly every major PE-backed insurance broker is aggressively seeking to acquire independent registered investment advisors. The number of M&A transactions increased by ~400% from 2016 (55) to 2022 (222), with over 60% completed by private capital-backed acquirers.

 

Nothing spells opportunity like motivation backed by capital. With the gains enjoyed from their relationships with private equity firms, PE-backed insurance brokers have sizable capital coffers ready to go and will pay more for your RIA than the other subset of RIA buyers. Studies have shown that on average, private equity-backed deals tend to command higher sale values compared to deals with other types of buyers. For example, according to a report by Bain & Company, in the US, the average exit multiple for PE-backed deals was 12.1x in 2020, compared to 10.8x for strategic buyers.

What Does My RIA Firm Need to Sell at an Attractive Price?

There are several factors that can affect the sellability of an RIA firm. Some key considerations include:

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Consistent and Diversified Revenue: Potential buyers are likely to be attracted to RIA firms with a strong and diverse revenue stream. Earnings stability can be achieved through: a combination of retaining existing clients and acquiring new ones to mitigate volatility, and offering a variety of revenue streams, such as feebased advisory services, financial planning fees, asset management fees, and/or commission-based revenue.

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Experienced and Stable Team: A skilled and stable team ensures the continuity and success of an RIA firm even after it is sold. Buyers may be more interested in firms with a team of experienced professionals who can continue to manage client relationships and provide high-quality services.

 

Operational Efficiency and Regulatory Compliance: Having efficient and effective operational processes and technology can make an RIA firm more sellable. This can help to reduce costs, improve service quality, and ensure a smoother transition of ownership. Beyond efficiency, buyers seek out RIA firms that are in compliance with all relevant regulations and requirements. Having a strong compliance program instills confidence in potential buyers and helps to ensure a smooth transition of ownership.

 

Solid Reputation & Brand:  A strong reputation can be a valuable asset when selling an RIA firm. Buyers are likely to be more interested in firms with a strong reputation for client service, industry expertise, and ethical behavior.

 

Strong and Loyal Client Base:  A strong and loyal client base can be a significant asset when selling an RIA firm. Buyers are often interested in firms with a proven track record of retaining clients and building long-term relationships. Demonstrating a low client churn rate and a high level of client satisfaction can help to make your firm more attractive to buyers. This can provide a predictable revenue stream and minimize the risk of client attrition after the acquisition.

 

Scalability: The ability to scale the business and grow the client base is another important consideration when evaluating the sellability of an RIA firm. A firm that can demonstrate a track record of growth and has a plan for continued expansion may be more attractive to potential buyers.

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​Want to learn more about why we think brokers are the best buyer for your business? We've played a leading role in building four of the top 10 insurance brokers in the US — and we'd love to share what we know. Connect with us and let's talk it through. 

About Sica | Fletcher

Sica | Fletcher has been the #1 advisor to the insurance brokerage space for the past consecutive 5 years, having advised on over $3.8 billion in brokerage deals in 2021 alone. We are a PE and M&A analytics platform that goes beyond just transaction data and are designed to optimize deal generation and business development through customized data, automation, and one-of-a-kind networking functionality.

 

On average, our process leads to valuations that are 30% higher than when agency principals negotiate sales on their own.

 

Recent RIA deals Sica | Fletcher has advised on:

 

  • Duncan to KAI

  • Johnson Brunetti to Alera Group

  • 401K Advisors to Alera Group

  • Corporate Benefits Alliance to World

  • Wharton to Alera Group

 

If you’d like to discuss your strategic options, please email or call us:

 

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