Guest: David DeVoe, Founder and CEO of DeVoe & Company,  a leading consulting and investment banking firm serving the RIA industry.

In a nutshell: RIA valuations are high. Private equity is everywhere. Industry consolidation is accelerating. But the number one driver of these trends isn’t aging founders and succession planning. It’s firms that are seeking scale as a means to maintain their independence and improve the level of service they can deliver. Whether you want to keep running your company — and your life — your way or you’re eying a significant exit, all RIA CEOs need a plan to navigate this complex business environment and keep their companies growing organically.

On today’s show, David DeVoe  shares why the RIA M&A wave is still going strong and could continue for another five-to-seven years.

.David DeVoe and I discuss:

  • The rise of “meta RIAs” and how these private equity-backed mega firms are reshaping the industry.
  • Resolving the tension between independence and scale.
  • How to drive organic growth above baseline GDP growth levels.
  • David’s three-part framework for valuing firms.
  • Practical steps to increase your multiple.
  • How attract, retain, and nurture top talent along a career path.

. Quotes: 

David DeVoe on deciding whether or not to sell: 

“ My point here is not going to be everyone should sell externally. I passionately don’t think that. Part of what we’re doing when we work with sellers is to say, ‘Let’s figure out the characteristics of the very best buyer for you.’ Part of our first month or so that we work with someone is to get to know their goals and objectives and their company and all that stuff. But one of the elements is related to control. Do you want control over everything? ‘Yes, Dave. I surely do.’ Okay. Do you want to control the whole compliance part of the business? ‘Okay, you got me there. Surely I don’t want to control that.’ How about technology? ‘No, I’d really love to outsource that.’ How about client experience? ‘Yes. I 100% want to make sure we have control over that.’ There’s no wrong answers there.  And then you get into, what’s most important to you? What do you want control over? Do they want to join an organization where they give up full control? Or maybe an organization where they still have control over certain elements? Do they want to join a firm that’s going to help them solve these business issues, but not those? And in many cases, it doesn’t make sense to sell externally at all.”

David DeVoe on the “tragedy” of complacency:

“  You and I and all your listeners know that the RIA model is truly the best way to serve families and investors. This great mousetrap should be growing really quickly. It should be growing at 9% or 10%, and was back in 2017, and that’s what I as a strategic person think should be happening for a model that’s so great. But it steadily declined and it went from 9% to 7% to 5% to 4% to 3%, just a steady decline. And this is tragic news because now we’re growing at really the GDP. 3% has been the consensus. Which is just a tragedy. And it’s a self-inflicted wound. I think what ended up happening is just complacency. The stock market is a great part of this model and why private equity is flowing into this space so aggressively is over time you have a 6% wind at the back of all these firms. If you’re basing your fee structure on fees, which the vast majority are, and as a consultant, all of them should, it’s just a wonderful model. Unfortunately that growth of 6% or even more, which we were experiencing, and we do experience over certain times, created this delusion that firms were growing. It wasn’t just psychological complacency, it was economic complacency. For years now, I’ve been really passionately focused on organic growth and how we can change this, how we should change this. Forget ourselves, let’s just help families and individuals by amplifying what we’re doing.”

David DeVoe on the importance career coaching: 

“ It’s well beyond the hiring side. It’s your current employees too and the engagement you have while they’re at the company is just going to be night and day. If you don’t have coaching on that career path, please start creating it. Being able to articulate that and then rooting them on, helping them get to the next level. Having not just annual reviews, but even quarterly reviews and weekly or biweekly coaching meetings to say, ‘Hey, to get to that promotion, we identified these three things, I’ve been thinking about it, this is how I can help you.’ You will see your people blossom and become more fully engaged in the work they do. And connecting it back to purpose, the reason we’re doing this is it helps the company do these things that achieve this result. The softer stuff is the harder work in many cases, but that hard work yields great returns.”

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