RIA firms are growing increasingly more popular and profitable.
For RIA firm owners looking to monetize their business, there are a few different options available. In the past, private equity was the primary source of liquidity for these types of transactions. However, with the growth of the independent channel, there are now a number of different options for firm owners to consider.
The Different Options for RIA Firm Owners Looking for Liquidity
As the independent channel continues to grow, so too do the options for RIA firm owners looking to monetize their business.
According to Barrons, “demand for RIAs far outstrips supply; investment bankers report one seller can attract as many as 20 or 30 interested buyers.”
While private equity has been a popular option in the past, there are now a number of different firms and platforms that can provide liquidity to firm owners. These include:
Independent broker-dealers – Independent broker-dealers have become a popular option for firm owners looking to transition to independence or monetize a portion of their practice. These firms typically provide forgivable loans to firm owners in exchange for a minority ownership stake in the business.
Capital markets – The capital markets have also emerged as a viable option for firm owners seeking liquidity. In recent years, there have been a number of transactions in which RIAs have sold a minority stake in their business to strategic and financial buyers through an initial public offering (IPO) or other type of transaction.
Family offices – Family offices have also become an increasingly popular source of liquidity for RIA firms. These investors typically take a long-term view and are interested in investing in businesses that they can help grow over time.
Other liquidity options:
- Self-financing
- Going to an independent broker-dealer for a forgivable loan
- Using private equity
- Selling a minority stake in the firm
- Doing a management buyout
- Going public
- Selling the entire firm
- Using an RIA’s internal cash flow to fund growth initiatives or buy out retiring partners
- Utilizing an RIA’s equity as collateral to secure a line of credit from a financial institution
- Working with an outside investor to raise capital through a private placement or other equity offering
Conclusion:
There are a number of different options available for RIA firm owners looking to monetize their business. While private equity has been a popular option in the past, there are now a number of different firms and platforms that can provide liquidity to firm owners. These include independent broker-dealers, capital markets, and family offices, each with its own advantages and disadvantages. Ultimately, the best option will depend on the specific needs and goals of the firm owner.
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