By Elizabeth Dilts
May 27, 2015
Full Reuters Article

Steven Dudash, like most brokers, spends a lot of time making it easier for his clients to retire. This summer, though, his plan is to make it easier for older brokers to retire.

After starting IHT Wealth Management in Chicago in June with six brokers, Dudash says he will buy four businesses from retiring brokers in coming months. The acquisitions will boost the assets his firm looks after to more than $800 million.

The 38-year-old Dudash, and brokers around his age, have a lot of businesses to choose from. Of the 300,000 brokers now working in the United States, nearly 35 percent are over 55. Between those Baby Boomers, and others looking to retire in coming years, some 40 percent of brokers will try to sell their businesses before 2022, according to research firm Cerulli Associates.

“(Buying) retiring advisors will be a huge part of the business moving forward,” said Dudash, who now has 19 brokers at IHT and said he gets three calls a week from older advisers seeking to discuss selling their businesses.

Buyers close to Dudash’s age have been in business long enough to be able to afford to buy a competitor, and they are young enough to wring substantial income in years to come from the businesses they are buying.

For brokers born during the Baby Boom — from the mid 1940’s through the early 1960’s — finding someone like Dudash to buy their business is an increasingly urgent matter. Just 26 percent of brokers are in the younger half of Generation X.

With so many older brokers looking to sell to so few younger ones, wealth management will likely end up being a much more concentrated industry in the future, with a smaller number of mega-brokers handling large numbers of assets, industry experts said.

It also means that retiring brokers are likely to get less money for their businesses the longer they wait.

For the brokers buying from their older counterparts, it’s a good time to get new customers: New clients have become tougher to win in recent years, as more investors push to cut expenses by managing their own money, or by getting automated advice from platforms like Wealthfront or Betterment.


It’s also a good time for niche banks and private equity firms that finance these deals for buyers. Live Oak, a bank based in Wilmington, North Carolina, with about $680 million of assets as of the end of March, launched an adviser lending division in 2012.

A typical loan to fund the purchase of a senior adviser’s business is about $800,000, said Jason Carroll, who heads the division. As of April 30, Live Oak had made a total of $175 million in loans. By the end of May, Carroll expects its volume will top $200 million.

Over the last year, brokers have been able to sell their businesses for two to 2.5 times annual revenue, if they have desirable qualities such as younger clients and accounts that generate steady revenue, Carroll said. An adviser who manages about $75 million of assets and generates $750,000 of annual revenue could sell his or her book of business for at least $1.5 million. [ID: nL2N0QI2MC]

Private equity firm Lightyear Capital, which built Cetera Financial Group from a series of acquisitions made starting in 2008, sold the combined business in 2014 for $1.15 billion. Lightyear did not disclose how much it paid for Cetera’s constituent businesses. It remains active in as an investor in wealth management firms – it bought a majority stake in the Minneapolis-based independent firm Wealth Enhancement Group last month.

Banks, historically among the biggest buyers of wealth management firms, are also showing interest in the deals. In 2014, banks bought 47 registered investment advisors and trust companies, twice as many as in 2013, according to the mergers & acquisitions consulting firm, Silver Lane Advisors. In one of the biggest, Canadian Imperial Bank of Commerce bought Atlantic Trust Private Wealth Management in Chicago for $210 million.

Prices for brokers’ businesses are likely to fall in the future as clients get older and begin withdrawing money from their accounts. Most advisers have not prepared to sell their business. Roughly a third of U.S. brokers have a succession plan, and only 17 percent have created a binding agreement, according to a study by SEI Advisor Network.

Many will try to sell only after they realize their business is depreciating, potentially flooding the market, said Mark Hurley, CEO of Fiduciary Network, which has bought minority stakes in 17 wealth management firms.

However, not every broker nearing retirement age can commit to selling his or her business, Hurley said. Many have trouble letting go.

“A lot of owners can’t get through the grieving process,” said Hurley.