There may be no better time to sell an independent firm.

M&A activity has been breaking records for years, and it just broke another. For the first time ever, advisors received multiples of at least 1.5 times recurring revenue for their firms last year, according to the Succession Resource Group. With a slew of advisors looking to retire in the coming years, premiums are hitting never-before-seen highs. The problem is that not all advisors are taking the appropriate steps to maximize their firm’s potential value.

“Today’s market is frenzied and there’s a lot of FOMO in the space right now,” Jenny Souza, CEO of Emigrant Partners, said during a panel at the Schwab Impact conference in Denver. “Supply and demand remains as strong as ever.”

Make It a Value Meal

While valuations are the hot topic, advisors should really be thinking about enterprise value, Souza said. A more professional approach to managing the firm’s finances can help, like formalizing technology spends and investments in talent and marketing. But, the biggest driver is simply organic growth. “I would argue it would be at the top of the stack,” she said, adding that it’s not just about having one successful year that beats benchmarks. “It’s sustainable, [something] a firm can repeat year after year … and being able to show a thoughtful strategy around how to sustain it going forward.”

One place advisors can start is by addressing client demographics. Older advisors who are preparing for retirement usually have aging clients, according to the Succession Resource Group report. That can hurt valuations, especially if there is no multi-generational planning in place to refresh those assets. “Financial planning for the next generation and helping them see a pathway, and the benefit, is something that even the small business owner can do, and you certainly have to start a lot sooner than you think,” John Furey, managing partner at Advisor Growth Strategies, said during the panel.

According to the report:

• There were 176 peer-to-peer deals completed last year.
• More than $13.3 billion in total assets were transferred over the same time period.

Decisions, Decisions. While generational planning won’t be an overnight success, the hard work will eventually pay off. “We all say we want to grow, but it’s hard work,” said Wealth Enhancement Group CEO Jeff Dekko. Keep in mind, there are many flavors of selling a firm and advisors need a well mapped-out plan. “Closing day, there’s a check and everyone is super excited, but the day that really matters is a year later: It’s the anniversary,” he said during the panel. “Did I make the right decision?”

Private markets are opening up, but at what cost?

Private market investments traditionally come with illiquidity and opacity, two things advisors and their clients prefer to avoid. Nonetheless, firms from JPMorgan to BlackRock to Goldman Sachs and beyond are looking to bring alternatives to the mass affluent segment via semi-liquid funds and certain kinds of ETFs. At the same time, recordkeepers like Empower and State Street are starting to offer alts in 401(k)s. US retail investors’ allocations to private capital could reach $2.4 trillion by 2030, according to Deloitte.

However, that surge of mass affluent money could fundamentally change how private markets are regulated and ultimately how they perform. “Private investments offered to retail investors are unlikely to look anything like the ones offered to institutional investors or the ultra-high-net-worth clientele,” said Alex Caswell, founder of Wealth Script Advisors.

See Clearly

Many in the wealth industry feel the retail push is likely to prompt more oversight, providing investors with greater protection, flexibility and transparency:

• Transparency regarding valuation reporting and performance measures in private markets are top concerns for investment professionals, according to a CFA Institute report.
• Greater disclosure increases costs and administrative burdens, especially for smaller managers, though AI and automation can ease those challenges.

“The more asset managers want to go into 401(k)s, there’s naturally going to be a lot of pushback on the opacity,” said Jack Shannon, principal, equity strategies at Morningstar. “The SEC is going to want disclosure on valuations and holdings. If you pull a holding schedule for some of these funds, you can’t tell what the hell is in them. It’s just a bunch of LLCs with nondescript names.”

Be Like Water? Increased regulation could, however, hurt the potentially high returns that make private markets so attractive in the first place. “There’s going to have to be some level of illiquidity to make things work from a return perspective,” said Matt Malone, head of investment management at Opto Investments. “A lot of times, liquidity is actually a problem because everybody runs for the door at the same time.”

Institutional investors, who formerly had exclusive run of private markets, aren’t excited about the surge of mass affluent money and its effects on illiquidity, either. Their concern is that private equity firms will prioritize retail investors at the expense of institutional investors, according to a white paper from the Institutional Limited Partners Association.

Yeah, PE, don’t forget about the big guys.

Much has been made of AI-driven notetakers, but the technology’s lead-generation capabilities may yield a much bigger bottom-line benefit.

AI prospecting tools, which find and curate potential clients for financial advisory firms, have sprung up alongside notetakers, meeting summarizers and material generators. They pinpoint leads based on location, income and even occupation, scraping public records and firms’ existing databases. That level of hyper-personalization lets advisors target their pitches to the people most likely to be interested, and the amount of data the firms have is only going to increase, experts said.

“[AI prospecting] firms that buy more data tend to [perform] better,” said John O’Connell, who authored a recent report from The Oasis Group on the best tools for financial advisors. “Today, none of these firms get credit card data, but credit card data is very easy to get … Imagine that amount of data and giving that into the hands of a wealth management firm.”

New Leads, New Me

The top tool in terms of overall capabilities is FINNY, which can be integrated with more wealth management software and has better data-exporting capabilities, according to the Oasis report. Catchlight, however, covers more potential use cases, since it can upload and sort through massive datasets of potential contacts, filtering them by demographic characteristics and investable assets to give advisors the best options. “I can look at, for example, ZIP codes where the houses are over a million bucks. That would tell me that these people probably have more money,” O’Connell said. “I can look at job descriptions: Who are doctors or attorneys who have more of a higher-earning position?”

Other standout tools from the report include:

• Wealthfeed, which focuses on converting prospects who are divorced, inheritors and high-net-worth individuals.
• TIFIN AG, which aims to help firms acquire new clients, grow the assets managed by the existing clients and retain current ones.
• Aidentified, which uses machine learning to determine the strength of potential leads based on employment, education level and other factors.

Key Terms. Among the key capabilities that prospecting tools can provide are the ability to search for particular professions, or to conduct Boolean searches that combine key terms to enhance specificity and further tailor results. If a firm doesn’t have a professional athlete division but another nearby firm does, for example, it may want to exclude such clients — something O’Connell said AI lead generation tools should be able to do.

“Think of someone like a Carson Group, or a Wealthspire, that has multiple offices and divisions,” O’Connell said. “Can I set filters that say, for example, ‘I only want to go after people that have over $2 million in investable assets’? But at the same time, can I allow each advisory team to set their own parameters? … The family office division doesn’t want to talk to millionaires.”