Eight financing paths for RIA acquirers

Advisors buying registered investment advisers now choose among eight financing routes. Options include aggregators backed by private equity, traditional banks, private credit lenders, minority investors, Small Business Administration loans, founder-to-successor “sunset” arrangements, purchases by other private or public firms, and ultrahigh-net-worth family offices.

Private-equity firms and the aggregators they fund remain prominent providers. Banks continue to offer loans designed for RIA mergers and acquisitions. In recent weeks private credit funds provided acquisition and growth facilities to firms such as Steward Partners and Coastline Wealth Management. Tuck-in deals, where smaller advisories operate under a larger parent platform, have become the most common transaction form.

Brandon Kawal, a partner at Advisor Growth Strategies, advised sellers to evaluate a potential buyer’s investment return model and how that model aligns with the seller’s objectives. Kawal added that owners must be clear about why they are seeking capital: “You have to start extrapolating your ‘why’ to the market, not the other way around — not whoever is looking to give you capital and you figure out the why after, because it just won’t work out.”

Sammons Financial Group acquired Wealthcare last year. Wealthcare president Matt Regan said Sammons’ permanent-capital approach has sped M&A activity at the firm. Regan noted Sammons has acquired fintech and RIA assets including Beacon Capital Management and NorthRock Partners, and that Wealthcare now oversees about $10.5 billion in client assets, including roughly $1.5 billion associated with nine advisory practices the firm owns. Regan described Sammons’ recruitment message as: “when we buy a firm, it’s forever,” and said the insurer sought to reduce exposure to interest-rate volatility.

Deal terms vary by source of capital. Some private-equity backers roll investments into new funds or create continuation vehicles to extend ownership beyond an initial fund life. Banks provide secured debt against advisory assets, and private credit firms are supplementing the market for buyout and growth financing. Industry estimates put operating margins near 39% last year and the average advisory practice producing operating profits around $2.1 million.

Sellers should expect variability in valuation and terms. Firms that present defined growth rates, clear client niches and documented succession plans generally attract more bidders and higher offers. Practices lacking those elements may face fewer financing alternatives and lower valuations. Kawal predicted that some of the largest platforms may eventually pursue public listings to access broader pools of capital.