Taking Control of Your Destiny Jim Wilkerson Managing

Taking Control of Your Destiny Jim Wilkerson Managing Director Integrated management Resources

Business Planning § Identify/create your value proposition § Assess the strength of your relationships with your clients § Assess your team, will the team support? § Discuss with family § Determine how much you can physically, financially and mentally afford***

The Advisor Who is Considering Independence § Has the firm’s culture changed? § What is the firm’s agenda? How does that fit with my own agenda? § Do you feel that management hinders the ability to get things done? § Management changes? § Compensation plans?

Do You Fit the Independent Model? § Entrepreneurial § Client Centric § Established and strong client relationships § Business is profitable and revenues can support independence § Organized

Identify Which Independent Model Suits You Best § Do you have the capacity to manage your firms operations? § Are you looking for total autonomy or want the brand infrastructure of an established B/D? § Looking for upfront capital? § Prefer equity ownership? § Identify top priorities

The Two Paths to Independence § RIA § Independence with an established Broker Dealer

The 5 RIA Models 1) 2) 3) 4) Pure Independent RIA Independence with platform provider Affiliation with a financial partner Setting up a business as part of an established firm or group 5) Joining an existing RIA firm

1) Pure RIA Model – True Independence üTruly your own business – equity ownership üOpen architecture – products and providers üCustomized solutions for HNW/UHNW clients üNo restrictions from B/D on OBA üNo home office restrictions with regards to marketing activities/social media strategy üManage your own compliance

2) RIA Model with a platform provider ü Still owning your own business – equity ownership üOpen architecture – products and providers üCustomized solutions for HNW/UHNW clients ü Compliance and Operations Options that are flexible

3) RIA Model affiliated with a financial partner üIn return for giving some ownership to the firm, receives financial support üOpen architecture – products and providers üCustomized solutions for HNW/UHNW clients üCompliance and Operations Options that are flexible

4) Setting up a business at an established RIA üIndependent but an employee of the firm/group üFinancial support upfront üInfrastructure support üMany times involves an equity stake in the parent company

5) Joining an Existing RIA Firm § Can be an employee or partner § Financial support, cash up front § Infrastructure support § Equity stake in the RIA

What to consider before becoming an RIA üStart up costs §Real estate §Personnel §Technology üComplexity of the business §Custodian relationship §Clearing platform §Legal & Compliance §Investment offerings – selling agreements §Technology

Affiliated Independent Model § Sophisticated operational and back office infrastructure § Greater control over pricing for clients § Start up capital § An entrepreneurial environment with the support to focus on what is important***

Affiliated Independent Cont. üTurnkey Platform and technology – plug and play üUpfront investment in your business üCo-branding with the B/D if prefer üHome office support §Operational §Marketing, advertising & branding §Compliance & legal üPractice Management resources üMany today offer the hybrid RIA structure option

The Hybrid RIA üDon’t have to choose one model over the other – brokerage/transaction fees and fee based** üDually registered: joins a fee based RIA and is affiliated with an independent B/D üSemi-captive: affiliates with a B/D that offers an RIA. IBD chooses custodian üKey benefit – turnkey infrastructure and support

Due Diligence Process üUnderstand B/D Platform limitations üHome office involvement with compliance and marketing üFINRA regulated and increased scrutiny, increased B/Ds oversight

The Economics by Structure National Firms Regional Firms §Offer largest transition packages 330%+ §Fewer levels of management § Cash payout ranging from 38 -44% § Transition packages range between 80 -125% §Avg GDC $800 k §Cash payout ranging from 38 -50% §Avg GDC $400 k

The Economics by Structure Boutique Firms Quasi Independent Firms §Require higher minimum account sizes §Offer transition deals ranging from 100% + §Transition packages range from 200 -225% §Cash payout at the low end 50% § Cash payout ranging from 38 -44% §Equity Ownership §Avg GDC $800 k

The Economics by Structure Independent Broker/Dealers RIA §Business owner model §Pure Independence §Gross payout ranging from 80 -90% §Gross payout 100% §Net 65 -75% after expenses § Net 55 -70% after expenses §Avg GDC $400 k §Equity Ownership

The Economics At a Glance Wirehouse Revenue $1, 000. 00 IBD $1, 000. 00 RIA $1, 000. 00 Fees/expenses House ($600, 000. 00) ----Broker/Dealer Fee --($150, 000. 00) --Expenses --($300, 000. 00) ________________________________ Payout or profit $400, 000. 00 $550, 000. 00 $700, 000. 00

The RIA Module Mergers and Acquisitions

M&A Risk Factors q. Employee Related q. Seller Related q. Client Related q. Deal Related

M&A Risk Factors q. Employee Related üTurnover – potential loss of key people üRetention of legacy employees üCultural differences – challenge of adapting üExpectations – equity ownership

M&A Risk Factors q. Seller Related Risks üLack of established new roles, responsibilities üPoor planning üClients and employee retention

M&A Risk Factors q. Client Related Risks üClients decide not to move to the firm üClients leave after the close üToo many client with few assets üAcquire high maintenance clients

M&A Risk Factors q. Deal Related Risks üStrategic rationale must be compelling üInadequate due diligence üIntegration of the firms drags out üBuyer acquired at too high a price üGeographic market üPoor enterprise value analysis

How do I determine my firm’s value? Revenue Multiple Trailing 12 months X (N). N= Avg industry multiple is 2. 1 Profit Multiple Bottom line X (Y). Y= Avg industry multiple is between 4 and 8 Present Value of Income* (x + y) x (discount rate) = z x = 10 years projected revenue y = firms 10 profit margin projection z = Present value of income * It is advised to work with a CPA to ensure proper analysis

RIA Valuation Model Succession planning Assess current position and prepare the firm for valuation and transition Practice sales Quantify market performance and market potential that supports valuation Practice acquisitions Broader search and due diligence produce improved fit and post-transaction performance Pricing An objective assessment of a practice's unique retail market characteristics and growth rate Business planning Objective market position assessment and quantification of sales and marketing programs

Empirics Applications in Wealth Management Firm Planning & Valuation

National Firms § Bank of America/Merrill Lynch § Morgan Stanley § UBS § Wells Fargo § Oppenheimer

Regional Firms § RBC § Raymond James § Stifel Nicolaus § Janney Montgomery Scott § RW Baird § Hilliard Lyons § Waddell & Reed § Ameriprise § Edward Jones

Boutique Firms § Credit Suisse § Deutsche Bank § JP Morgan Securities § Barclays Wealth § Goldman Sachs § Private Equity Firms

Quasi Independent Firms § Hightower Advisors § Cantor Fitzgerald Wealth Partners § Focus Financial § Dynasty Partners § United Capital

Independent Channel Firms § LPL § Ameriprise Franchises § Raymond James Financial Services § Commonwealth § Summit § Cetera – RCS Capital § National Planning Holdings: - Invest Financial Corp - Investment Centers of America - SII Investments § ING Financial Partners § Advisor Group - FSC - Sagepoint - Royal Alliance - Woodbury Financial § Wells Fargo Financial Network (FINET) § Cambridge Investment § Many others!

We will save you Time Money and Stress! For years we have been helping financial advisors and wealth managers like you with their due diligence when they are ready to transition their practice to another firm or business model. We know you are busy helping your clients If you choose to hire us as your consultant, our value is, that we will save you time, money and stress by helping you evaluate all of the industry products, platforms, culture, and personalities for your consideration. If you are ready to begin the process, and haven’t found the right opportunity or you have simply been too busy to do your own due diligence, please call 480 -4604422 to set up an initial meeting with us. You could also email me at jim@integratedmgmt. com. We look forward to speaking with you soon.