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Private Equity managers have flooded the independent channel the past 3 to 5 years with scads of money. It’s high time someone reminds advisors of the latin phrase, caveat emptor, which
means “let the buyer beware.”
In the spirit of keeping it simple, there are two kinds of PE managers. The first is Buy-to-Build, and the second is Buy-to-Sell. Not surprisingly, I have a strong bias for the former, and trepidation for the latter.
Essentially, the independent channel is a cluster of “start-ups” being built by former wire-house executives who were highly skilled at managing offices and recruiting. Access to capital and/or financing is ultimately needed to scale these new companies. In this type of scenario, the right PE Firm (Buy-To-Build) can be a vital partner.
To succeed, goals should be aligned among the key stakeholders - financial advisors, management and the private equity firm. Since the best companies are built from the bottom up, it begins with the financial advisors.
There is a consistent theme among advisors who leave the Big 4 Wire-Houses. They feel abused by pre-tax margin obsessed executives, and seek refuge from their two-pronged agenda: don’t invest in the business and cut costs. To be blunt, I fear the PE Buy-to-Sell model is going down the same road.
Advisors have a deep affection for their clients and employees. They yearn for the collegiality they once knew, and the pride of working for a company that possesses a strong moral compass.
In the movie, Field of Dreams, Ray Kinsella hears a soft whisper, “If you build it, he will come.” The PE Buy-To-Build model along with highly skilled former wirehouse executives is the ideal partnership to build the advisor’s Field of Dreams.
Jun 03, 2024
Field of Dreams
means “let the buyer beware.”
In the spirit of keeping it simple, there are two kinds of PE managers. The first is Buy-to-Build, and the second is Buy-to-Sell. Not surprisingly, I have a strong bias for the former, and trepidation for the latter.
Essentially, the independent channel is a cluster of “start-ups” being built by former wire-house executives who were highly skilled at managing offices and recruiting. Access to capital and/or financing is ultimately needed to scale these new companies. In this type of scenario, the right PE Firm (Buy-To-Build) can be a vital partner.
To succeed, goals should be aligned among the key stakeholders - financial advisors, management and the private equity firm. Since the best companies are built from the bottom up, it begins with the financial advisors.
There is a consistent theme among advisors who leave the Big 4 Wire-Houses. They feel abused by pre-tax margin obsessed executives, and seek refuge from their two-pronged agenda: don’t invest in the business and cut costs. To be blunt, I fear the PE Buy-to-Sell model is going down the same road.
Advisors have a deep affection for their clients and employees. They yearn for the collegiality they once knew, and the pride of working for a company that possesses a strong moral compass.
In the movie, Field of Dreams, Ray Kinsella hears a soft whisper, “If you build it, he will come.” The PE Buy-To-Build model along with highly skilled former wirehouse executives is the ideal partnership to build the advisor’s Field of Dreams.
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