Did the DOL Create a Buyer’s Market for Advisory Firms?

Did the DOL Create a Buyer’s Market for Advisory Firms?

Every year after tax season, ‘for sale’ signs go up at CPA firms across the country. It’s no wonder.

It’s a grueling business that forces accountants to run a marathon-length sprint at tax time to accommodate their clients, most of whom file on April 15. Once it’s over, it’s not uncommon for CPAs who are near retirement age (or even younger!) to call it quits. The result can be a buyer’s market for anyone looking to buy an established firm.

If you’re a financial advisor looking to expand your practice, you know all too well that the process of buying (or selling) another practice hasn’t been so simple in our own industry. That may be because maintaining a book of business is often not as difficult as building it in the first place. Many older advisors therefore can keep their doors open longer and, in some cases, simply lighten the load over time to create a “lifestyle practice.” That allows the advisor to delay retirement indefinitely, and it keeps their clients happy as well. This reality has made it a challenge for advisors who want to expand their own practices by purchasing another firm. Companies like FP Transitions and Succession Link who specialize in bringing the buyers and sellers of advisory firms have reported that for every seller on their sites, they have between 30 and 50 potential buyers. That’s a lot of competition!

The good news: the game may have shifted entirely with the announcement of the final DOL fiduciary rule. By April 2017, advisors must comply with the new rule that includes changes to producer compensation, products, and compliance. Advisors who operate commission-based practices are facing a transition—and for those one-third of advisors who are nearing retirement, it just may not be worth the trouble.

That’s great news if you’ve been thinking about expanding your own practice. Thanks to the DOL, the number of ‘for sale’ signs on advisory practices is likely to escalate in the next 12 months, and for the first time in ages, there may be more sellers than buyers. If you’re ready to consider the opportunity, here are five things to keep in mind:

1. Choose a firm with similar values.

Taking on a practice is a complex, “Brady Bunch” challenge. Take the time to be sure your philosophy and culture are aligned. If your focus is financial planning, an investment-focused firm won’t be a natural fit. The same is true for active versus passive investment styles. From a team perspective, synergy with your own team will go a long way to reduce integration pains. The same goes for the clients. Some advisor’s clients might be used to “kitchen table” meetings versus having to come to your office, some may prefer a more formal setting, and some may prefer a more “robo” approach. Think through which differences you can live with—and which you can’t (or shouldn’t).

2. Consider technology.

Technology is another challenge. Whether it’s a CRM system, the clearing firm used or other key systems, evaluating and understanding your target’s technology platform is a key consideration. This is especially true now that “robo” strategies are becoming more important to growing practices. Of course, if you’ve found the perfect firm, their technology platform (or lack thereof) needn’t be a deal breaker, but it will need to be addressed—particularly if your technology platform is not completely defined and built.

3. Consider transitioning new clients to fee-only.

Since you’re going to have to initiate contracts with each new client at the time of the business transition, you may want to introduce a fee-only structure from day one. Discuss why a fee-only agreement may be best for the client, and clearly lay out how much they’ll be charged each quarter and what they receive in return.

4. Make client retention your #1 priority.

No book of business is worth the price if you don’t retain the clients within it. Work with the seller to create a strong client communication plan with his or her client base. Get introduced personally when you can to be sure the transition is relationship based, not paper based. To incent the selling advisor’s involvement, consider structuring the selling price on a percentage of retained clients or assets under management measured at specific time frames in the future.

5. Don’t rush the transition.

Even if the seller is ready to call it quits yesterday, a smooth transition is vital to client retention. Many sellers are willing to work together with a buyer for a period of time to assist with the details of account transfers and to hold their clients’ hands through the change. In this relationship-based business, a smooth, careful transition can be the difference between simply taking on more work and achieving your long-term plans for your growing practice.

Keeping these five things at the top of your mind and setting up conscious processes around them will help maximize the opportunity of buying another advisor’s business. I can’t say that the post-DOL environment will increase advisory practices up for sale in a similar way that CPA practices are for sale after April 15, but being prepared for the opportunity will give you the best chance for success.

Bill Acheson
Investing in Life
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Bill Acheson is the Chief Financial Officer of GWG Holdings, Inc. Mr. Acheson has over 25 years of sophisticated financial services expertise. Mr. Acheson has extensive experi ... Click for full bio

An Emerging Theme In Thematic Investing

An Emerging Theme In Thematic Investing

Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments.

Go back to the late 1990s, before the bursting of the Internet/technology bubble. Back then, investors stood an equal chance of selecting E-Toys over Amazon or some no longer in existence networking equipment maker over Cisco.

“History is littered with examples of prospering industries with no indication of which company will come to dominate the industry,” according to Nasdaq. “This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities.”1

The ALPS Disruptive Technologies ETF (DTEC) provides basket exposure to a broad swath of thematic investments. DTEC features exposure to not just one or two emerging technologies, but 10 such themes on an equal-weight basis.

Disruptive Efficiency

The 10 themes represented in DTEC are as follows: 3D printing, clean energy, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, Internet of Things (IoT), mobile payments and robotics and artificial intelligence (AI).

Generally speaking, fund issuers have been quick to respond to disruptive and transformative technologies, bringing products to market to tap these themes. Prior to DTEC coming to market late last year, there were ETFs devoted exclusively to cloud computing, cybersecurity, robotics and other themes featured in DTEC. However, few use the basket approach to themes employed by DTEC.

Related: Getting Paid to Play The Energy Patch

February, a rough month for U.S. stocks, highlighted the advantages of DTEC's multi-theme methodology. Seven of the 10 themes found in the fund finished the month lower, but DTEC was able to outperform the S&P 500 on a monthly basis.

Focusing on individual themes can be rewarding over the long-term, but not all investors have the risk tolerance for such a strategy. Consider this: the Indxx Global Robotics & Artificial Intelligence Thematic Index jumped more than 48% in 2017. That type of performance is enough to seduce many investors, but that same benchmark slipped 7.60% in February, generating monthly volatility of 34.10%.Said another way, that robotics and AI index's February slide was more than triple the loss experienced by DTEC during the month.

More Advantages

While it probably is not accurate to call the indexes devoted to individual disruptive themes “old,” many use old school weighting methodologies. For example, the two largest components in the ISE Cloud Computing Index are Netflix, Inc. (NFLX) and Amazon.com Inc. (AMZN). Only two members of the S&P 500 have larger market values than Amazon while Netflix currently has a larger market cap than Wal-Mart (WMT) and McDonald's (MCD).

Holdings subject ot change as of 12/31/17

For its part, DTEC not only equally weights its 10 disruptive themes, but its 100 components as well, potentially reducing single stock risk in the process. As the chart below confirms, equally weighting stocks is rewarding across sectors and market capitalization segments.

Past performance does not guarantee future results

Annualized returns for the past 10 years show seven of the 11 S&P 500 sectors, when equally weighted, outperform cap-weighted equivalents, according to S&P. Three of those seven sectors – financial services, healthcare and technology – are prominent parts of DTEC's roster.

1 Source: Nasdaq Dec. 28, 2015 https://www.nasdaq.com/article/what-thematic-investing-is-and-its-strengths-and-risks-cm559209

2 Source: ETF Replay data


An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

An investment in the ALPS Disruptive Technologies ETF (DTEC) may be subject to substantially greater risk and volatility than investments in larger and more mature technology companies.

There is no assurance that the market developments and sector growth based upon the themes discussed in the article will come to pass.

ALPS Disruptive Technologies ETF shares are not individually redeemable. Investors buy and sell shares of the ALPS Disruptive Technologies ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.

ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.

The content and opinions expressed in this article are that of the author and not the views and opinions of AAI.  In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.

There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. Past Performance is not indicative of future results.

The fund is new and has limited operating history.

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Disruptive Technologies ETF. AAI is affiliated with ALPS Portfolio Solutions Distributor, Inc.

The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.

S&P 500®: A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

S&P SmallCap 600®: A capitalization-weighted index that measures the small-cap segment of the U.S. equity market.

S&P MidCap 400®: A capitalization-weighted index that measures the mid-cap segment of the U.S. equity market.

Indxx Global Robotics & Artifical Intelligence Thematic Index: The Indxx Global Robotics & Artificial Intelligence Thematic Index is designed to track the performance of companies listed in developed markets that are expected to benefit from the increased adoption and utilization of robotics and Artificial Intelligence ("AI"), including companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Unmanned Vehicles.

Tom Lydon
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IRIS Co-Founder and Editor and proprietor of ETFtrends.com. Tom is a frequent contributor to major print, radio and television media including Forbes, The Wall Street Jou ... Click for full bio