“Being told what to do is bad for me,” Bill Chetney deadpanned at the start of the first in-person, advisor-focused conference since 2019 for many financial professionals.
Held in, of all places, Alaska, the founder of GRP Advisor Alliance (GRPAA) hosted a gathering that was heavy on the individual entrepreneur and light on corporate executives.
“When I sold my first business, the deal was 50% in cash and 50% illiquid, non-publicly traded company stock,” Chetney said during a panel discussion about the current state of retirement industry mergers and acquisitions. “Today, advisors get 90% in cash and eight to 10 times EBITDA.”
The decision to sell is emotional for dyed-in-the-wool entrepreneurs, he noted, because they become employees of the acquiring firm.
intellicents’ Brad Arends, who sold the record-keeping portion of his business, seconded Chetney’s point.
“We had $12 million revenue and 110 employees. So why did we do it?” Arends asked. “Technology. We wanted to deal with larger employees and needed to metaphorically move from a PC-based system to a mainframe. We were proud of what we’d built, and we’re making money, but it was personal and not about money. It got rid of the clutter period and freed us to focus on wealth management, retirement plans, and group insurance.”
“We asked ourselves which business we wanted to be in—lower margin or higher margins?” Kidder Advisers’ Keith Gredys added. “Why did we stick with a lower margin business for so long? Loyalty to the client.
Private equity interest
The Retirement Advisor University (TRAU) founder Fred Barstein mentioned the $650,000 retirement plans in existence and private equity’s strong attraction to the space.
“Private equity loves retirement plans,” Barstein told attendees. “PE isn’t always right, but it moves in the right direction. RIAs are hot right now because margins are high, and there’s less regulation [than in other areas of the financial services industry. It’s an important yet fragmented market.”
People realize the best place to help people plan financially is in the workplace, a reason M&A is at its beginnings, he predicted. It started at the top and will eventually trickle down to smaller firms.
“How do you get valuations that the PE wants? Consolidation,” Barstein advised. “It will be a snowball that becomes an avalanche.”
Know the numbers
The discussion then turned to a client’s worth to an advisory firm. The recurring revenue intellicents realizes from a group plan participant averages $17 per month and $200 per year, Arends claimed. A retirement plan participant delivers roughly the same; $16 per and $195. Yet, the personal financial management client brings in $250 per month and $3,000 per year (assuming $300,000 in AUM).
“Fidelity knows these numbers,” he said, referencing the county’s largest recordkeeper. “Empower knows these numbers. I encourage you to research these numbers in your own firm, so you know how to build a business.”
“Our defined contribution business is growing, but our private wealth business is growing exponentially,” intellicents’ Grant Arends added. “Why does someone hire a financial planner? Because they want to be held accountable. Employees need help. There is every digital tool available to them under the sun. But our job is to get people financially healthy. It’s not about managing money, it’s about holding them accountable to a plan.”
Barstein concluded that the margins are higher on benefits, but retirement advisers have bigger clients.
“It takes an average of 18 months to land a wealth management client, but that is reduced to 22 days for a retirement plan advisor. You’re already known and trusted by participants since the plan sponsor has vetted you. We’re sitting on a goldmine, and you have one thing recordkeepers don’t—the relationship.”