Scott DiGiammarino: Mm-hmm.
Peter Velardi: Well, hello, everybody, to the Monetized Advisor brought to you by JPTD Partners. This is the podcast where we talk about how financial advisors grow, protect, and ultimately monetize the value of their business. I am Peter Villardi. I am one of the founding partners of JPTD Partners. I am the P, ⁓ and with me is ⁓ a partner in crime out of four of us. ⁓ also a founding member of JPTD. He is the D in JPTD, Scott DJamarino. ⁓ Scott, welcome and it's ⁓ it's a blast as always to have you with me partnering today.
Scott DiGiammarino: Thanks, Peter. It's gonna take excited to rock and roll today.
Peter Velardi: Yes, yes. We've got a lot of things to do. The primary meat of today's podcast, as you can see in the title, ⁓ is kind of the solo advisors problem. ⁓ Why most advisors under 100 million in AUM struggle to sell and exit. So we're going to kind of push that around as the meat. Before that, we're going to do a quick article review to give you an idea of what's going on in the RIA space. Amongst others, there's RIA, there's the IBD, there's hybrids, there's the Wirehouse. ⁓ we're gonna take a little bit of time to focus on the RIA space today. we'll hit the meet that we're talking about. We always do an advisor red flag, which is kind of one issue. We want to give you some information to help you solve. Today, the problem we want to help you solve is what do I do if I wake up and my practice in business depends entirely on me? ⁓ to the point I can't take a vacation, things start to, you know, the wheels come off the bus. What do you do about that? Why is that a problem? What do you do about it? ⁓ and then lastly, ⁓ we find our listeners really enjoy hearing actual real offers by acquirers ⁓ and what they look like for our clients. So we'll walk you through a real offer and you can kind of see the pieces of it, the terms. There's a lot of education and nuance in those ⁓ that we can help you see what it could look like for you at some point down the road. So that's the agenda. ⁓ that's my story, and we're sticking to it. ⁓ Scott, let's start with the article. The article today ⁓ was in Citywire, June 29th. So if you want to look at it, ⁓ it's by a dude named Alec Rich. ⁓ and the title of it is It Has Gotten Much More Competitive. ⁓ How Much Longer Can RIA's Rocket Ship Rise Persist? And it's all about the massive growth that's happened. Because private equity started paying attention to our space, you know, X years ago, entered, family offices entered, sovereign wealth, taking bites of these super think barren top 200 RIAs, and they've been buying up the next layer, and that layer is buying up this layer. And now it's no longer just about organic growth, sleepy growth. It's about if you're not kind of doing that and inorganic acquisitions. gonna be harder to compete. Sort of feeling, Scott, like in other industries, I'll just take the hardware where you know Home Depot and Lowe's maybe coming into your town and a town near you, you're the little guy in the corner, ⁓ you know, recognizing that is gonna be important. Doing something about it is gonna be important. But my question to you, Scott, is you know, does all that add up in your mind to say, you know, are the days of just, you know, average growth ⁓ easy growth are those days over because it's going to heat up and get even more competitive for some of these smaller firms.
Scott DiGiammarino: ⁓ well, you know, great question. So it's it's interesting. We started JPTD what seven years ago plus. and we started seeing the multiples, the four to eight X's on top line, or the or the six eight to sixteen X on eBay, like there's no way in the world this thing lasts. We thought it was a blip, right? ⁓ by the way, especially with an advisor could stick around forever and ever and ever. And ⁓ today, seven years later, the market is raging more than ever. The competition for talent, the
Peter Velardi: Yes. Mm.
Scott DiGiammarino: Competition for clients, a competition for AUM is incredible. And the creativity and the innovation and the services that are being offered to advisors by these big private equity-backed firms is so compelling. Because it frees people up a day, day and a half a week. It gets them generational wealth, and they can continue to practice in perpetuity. And I'm afraid that smaller firms. That don't have this type of backing. And by the I'm not talking about I can go to a bank and get a loan. You know, because you just won't be able to compete. I'm I'm afraid for those folks because they may get left in the dust, especially when it comes to a market. At some point in time, we all know there's gonna be a correction. And in in for the last what, 20 years, 15, 20 years, most practices have lived and died on market growth. Because organically they're only able to grow by single digits. And I'm a concern the fact that at some point in time when we have this recession or we have this adjustment to the markets, like history has always done, how these folks are gonna survive.
Peter Velardi: Yeah, well I think that's a great point. And ⁓ it's quite possible that there's gonna be a wider gap between kind of the haves and have nots, right? So it's gonna be ⁓ exponential because there's kind of two forces happening at the same time, right? We've got this whole massive industry consolidation, and all these firms, these bigger firms, are playing for two things because now they've got capital. So they're taking some of the capital and they're saying, let's invest that. In our infrastructure to better attract advisors that want to deliver more to clients. So they're creating these insanely family office-like value props for advisors for them to prosper, the G1s to prosper, the G2s to prosper, the stack, and they're providing these rich rewards in all three parts of the deals we do, which is upfront to de-risk at ridiculous multiples. Ongoing compensation and then kind of the ⁓ golden or the gold under the hill is the equity in their company. They're willingly sharing it now and creating these partner tracks. And so that's one use case, and we have to compete with that if we're a small practice, right? ⁓ but the second is they are all doing massive value expansion for clients because the second big trend is AI is nipping at everybody's heels right now, right? And there's a lot of fear out there. ⁓ and understanding growing awareness that AI can probably do right now, five out of 10 tasks an advisor can do. Fortunately, it doesn't look like it'll ever be able to do three or four of the most important ones. And because there is a shortage still right now of a hundred thousand plus advisors, that there's still a beautiful career ahead for a financial advisor, right? But if a smaller firm isn't expanding value, So that you can at least charge the same fees that you're charging. But there's gonna be compression against that because firms are gonna, clients are gonna say, hey, you know what? I can probably get an asset allocation done by Chat GPT. So why pay my advisor to do that? This is what's going on. So I think the little guy who's just been conditioned in the past just to grow a bit above market, you know, reach that kind of stage of lifestyle and complacency. I think it's gonna be you're either growing or you're dying is gonna be what's gonna start to happen, in my opinion. And ⁓ you're gonna have to play harder and maybe even think about not just growing organically traditionally, but doing things like some acquisitions. What do you think?
Scott DiGiammarino: Yeah. But like I ⁓ gosh, where do I start? I had a call from a really good friend of mine ⁓ over the weekend. You know, happy Fourth of July, dah dah dah, what's going on? super interesting. ⁓ they said, Hey, I got a new financial advisor that wants me wants to charge me five thousand dollars to do per year to to update my financial plan. Should I do it? So I said, Well, you could certainly pay that. I the value of that. You and I grew up at American Express and AmeriPrize, that's what we did financial planning. I said, He says, well, what goes, what if I went on chat or Claude and just plugged in all my data? Could I get the same results? So I said, well, give it shot. He called me an hour later and said the results from Claude were not only the same, but more intuitive, better than the financial plan he paid for $5,000 for the year before and the year before that. He says, why would I ever pay that fee? That is going to happen over and over and over again.
Peter Velardi: Mm-hmm.
Scott DiGiammarino: So, this revenue source by his particular advisor, he's gonna see shrinkage unless, of course, he's starting to add additional value ads that clients want. Estate planning, tax planning, ⁓ only help you plan your vacation. It's a lot more than asset allocation, and let's compare the our returns to what an index is. And I think I think clients are demanding more and more of the advisor.
Peter Velardi: Right.
Scott DiGiammarino: And if the advisor doesn't pivot and un you know, based on what demand actually is, they're gonna start seeing outflows, which is gonna crush their valuations down the road. That's why a lot of people, ⁓ a lot of advisors are are but selling a piece of their business, if not all of their business, to get access to these services that won't cost them a dime. It's much better to to to to join a firm that offers these services. to retain the clients and get more assets than to build it, especially if if you don't have a capital source in order to help you build it.
Peter Velardi: Yeah, and this is not unpredictable stuff. This has been going on in industries for a very long time. I have a lot of friends, as you do, Scott, that are, you know, orthopedic surgeons, dentists. This has been going on in their industry. They all were faced with a choice as a small business, ⁓ small, you know, surgery operation, super profitable at the time, right? Making lots of dough, but starting to see the consolidation happen. And every one of them now is with a larger firm. ⁓ and and firm that bought out a piece or all of it, so they're able to cash out, and now they're happy as you know what, because they get to just spend their time doing what they love to do. Same thing's going on in our industry. And so it's not, this is not any big surprise. There's lots of data on this. It just comes down to scale is becoming an even and increasingly valuable thing to have. in this new place. So put it put it another way, the little guy is gonna have a harder and harder time competing. So the headline is where you end it, Scott, which is at the end of the day, if you're small, you need to think about how I get large. And how I get li large either on my own, which means you're gonna have to invest more, hire more, build more infrastructure, and do it fast, because all this is moving very fast. Or you're gonna have to think about a merger of sorts. with a larger infrastructure to organization and just tap into all that. And ⁓ by the way, you know, if you've got ⁓ a practice and let's say it's a house and it's the peak of the real estate market right now in MA and you have this house with 10 rooms and you only need three rooms of that house, well go and sell the other rooms and hold on to the three that you use. That's fine too. We we do ⁓ all sorts of deals, minority, majority full. One there's no one size fits all. So Just think it's it's a wake up call for people to say, hey, let me at the very least be reflective. We're halfway through the year, take a step back. If you want to have a conversation with one of our partners, to say, hey, this is where I'm at with that. What do you think? We'll we'll tell you the true scoop. We see we talk to 10, 15 folks a day ⁓ in certain times of what we do who are all going through the same thing that you're going through. So ⁓ please.
Scott DiGiammarino: Yeah, I'll I'll add one more thing, Peter. It's funny, ⁓ going back to trends. When we first started this, we thought our average age client would be seven years old. You know, take the money, hit a beach. ⁓ it's not. Our average age client's 48. ⁓ and they all have a five, 10, 15 year run in them. So, so the younger generation is getting what you're talking about, ⁓ which is all about let's take some chips off the table, create some generational wealth, make make my life easier so I can get
Peter Velardi: Mm-hmm.
Scott DiGiammarino: Deeper share of wall with existing clients, get new clients, and God forbid, take a very well-deserved vacation and not have to worry as much about the business.
Peter Velardi: Yeah, we do. We've got a lot of ⁓ youngsters ⁓ at our age that come to us saying, you know, it's not that I want to sell anything, it's just that I wanna get to my highest and best use. I wanna free up some time to spend with the family. ⁓ and I know valuations are insane. I've worked my whole life, and maybe I woke up this morning and my business is worth 80% of my net worth, and I'm my worst client. So perhaps that's why I should do it. Because I know I'm gonna to compete with the big boys down the road. And they're saying to us, it's getting harder to run a business. It's getting harder to expand client value. Why not choose easy over heart? So ⁓ that that's a good wrap on that. All right, cool. So Scott, why do most advisors struggle? who, you know, maybe have a hundred million or less of assets? Why do they struggle to sell? We see a lot of those tuck-ins come to us.
Scott DiGiammarino: Yes.
Peter Velardi: ⁓ we do I think better than most helping them find a a buyer, but it is harder. ⁓ and it's harder for them and without working with somebody like us it's gotta be really hard. But why is that in your
Scott DiGiammarino: I th I think there's a couple of reasons. I mean, one is a lot of advisors that are under a hundred million run it like a financial advisor versus running it like a business. So a business, you have infrastructure in place. You have staff, you have systems, you have processes, by the way, all written down by the way, so you can scale the business. If if you're by yourself.
Peter Velardi: Hm.
Scott DiGiammarino: And everything, all the decisions, all the processes are predicated on you actually executing, then it's harder to, you're not as attractive out there. Now, that being said, you know, we I don't think we've ever done a deal sell to Forex on top line revenue, ⁓ you know, between upfront plus earnouts, not including compensation, not including stock swaps, et cetera. So we found we have built a market for those types of individuals, but People always say, what's the difference between a four and an 8X on top line? It's what we're talking about. It's the, it's the, it's, it's the running it like a business. It's having a history of growth. It's having desire to grow because the buyers, we have like 120 of them right now. The buyers are gonna pay a crazy number, but down the road, they're gonna flip it for two, three, four, five times that number, and they're gonna live on that arbitrage. The only way in the world that's gonna work for them is if they're growing. So they're looking for firms that want to grow and have that infrastructure, number one. And then number two, I think it's a post-deal compensation issue. So if you're a million-dollar producer, let's say you're spending 20% or 25% of overhead into your business, you know, you're you're so you're basically taking home six or seven hundred thousand dollars a year. If you sell, we might be able to get you, say, five or six million dollars.
Peter Velardi: Hmm.
Scott DiGiammarino: But you're probably getting a third of the compensation you were getting before you sold. Now, the buyers in that case are usually, it's a W-2 deal, so they'll pay 100% of the expense. So net on net, it may be the same or close to. But it's a lifestyle choice post-deal to make sure that you can maintain maintain the lifestyle that you're accustomed to without having to tap into the five, six, seven million dollars we might have gotten you on consideration.
Peter Velardi: Yeah, and that's all ⁓ again, there's no mystery in any of that, right? You know, when a business is looking to buy something, ⁓ they are buying a business, not a practice. They're not buying a book of business. They are buying a business because what any industry, any firm is buying when they buy a business, they're they're predicting and buying future cash flow in the business, future EBITDA, EBOC. ⁓ they're buying it. Believing that they can expand margins by leveraging their infrastructure and that it's going to grow faster under them than when it was in the past. And if that happens, everybody wins. Clients win, ⁓ the sell side wins, the buy side wins. And that's why we have so much fun doing this, right? ⁓ but, and there's a big butt there, you have to have a business. So, questions to ask yourselves would be things like: if I went on a one-month vacation. Would I come back to a fully ⁓ functioning business? And would we still be going northeast instead of northwest or southwest or southeast? ⁓ are we still growing? ⁓ and if the answer is heck no, I could never do that. I can't even leave for a weekend, forget about a week or a month, then that tells you maybe you've got a problem. ⁓ so this whole idea of founder dependency will hurt your value. The more things, and it's like anything else, whether you're a dental firm, a widget firm. The more the business depends on one principle, the less valuable it is because it's too much variation in human behavior. There's so many things in life that affects one person. But if you have systems, infrastructure, redundancy, forms of automation, you've got a business, not a business that depends on one person. Now you've got something that becomes way more predictable in terms of cash flow. ⁓ so, Scott, if you're small. ⁓ and you're like, man, I I'm I'm I'm one of those guys. I'm solo shop. I got one part-time staff. ⁓ you know, what would you suggest they do? What what would be kind of the choice set that they would have that they should really think about doing to put themselves in a better position to win and compete?
Scott DiGiammarino: Well, wh whenever you val whenever our buyers value a business, they look at all these different variables, right? And we've talked about a couple of them, like running like a business and have a history of growth. But ⁓ it's things like ⁓ are you at eighty-five, ninety percent recurring revenue, or are you just doing commission-based business? ⁓ obviously the the former gets a higher multiple. ⁓ do you do ongoing financial planning? I ⁓ what we found, whether it's through Claude or Chatter or your or the O or the OG fashion, we have found that when you do ongoing financial planning, you get seven times the assets. ⁓ take a look at what your your client age group is. If more than 30% are over the age of 70, do you have their kids or grandkids as clients? Because because it RMDs and people passing away, you the risk of outflows are higher. ⁓ Don't kid yourself if you're 50 years or older and you've done, let's say, a million dollars of revenue after 30 years and say, I'm gonna double in the next five years. Because it took you 30 years to get to one point. So have a reality-based conversation with yourself about the business and where it's going and what you need to do to get to that next level. And finally, I would say, you know, give us a call. You know, we we see 20 deals a week. We can give you a real good sense of what the market. Is for your business at this point in time, tell you about the good, the bad, the ugly. And quite frankly, we could basically tell you whether or not you're marketable and maybe even consult with you a little bit about what you need to do over the next couple of years so that you can ring the bell in terms of valuation and quote unquote having it all, where you can you could sell it your terms, you could stay as long as you want, and you could enhance the business like the business deserves to be enhanced.
Peter Velardi: Yeah, I think those are great ideas. I think ⁓ what I would say in addition to that is that for sure, feel free to call us and we can get a quick assessment. But step by step, what Scott's suggesting is first be self-aware. And again, this is a great time of year, about halfway or so through the year, depending on when you're listening to this podcast. And great time to take a step back and basically say, Is that me? Are they talking to me? And if it's you and you're like, yeah, I may have some threats that I don't perceive right now that I need to pay attention to. I just can't keep on doing exactly what I'm doing. I've got to make some changes, but I don't know what they are. That's a beautiful place to start. And then second, get some help. You can call us and we can give you a sense. We also work with ⁓ teams of some of the best advisor coaches in the industry who can help you specifically form the plan, execute the plan, coach you through it. ⁓ and that could include working with us if the best path for you, and it may not be, is to bring in a strategic partner so you can use their infrastructure, their expertise, their marketing, their capital if you want to do acquisitions. All that is something that we can turn the switch on quickly. My advice, if if there is any advice in here, Scott, ⁓ that I think you would support is get help. Don't don't be alone. Don't be a solo advisor and stay alone. Bring something, some other element in that can give you that reality check to say, no, you keep doing this. Here's what I would predict happen. That's if those are the outcomes you want, great. If not, let's take take a step back at it. So ⁓ that's great. So that kind of leads us into the advisor red flag part. I think we've we're kind of all over it, but this is all about, you know, this issue of the practice depending on you. so I think we can help them, Scott, maybe through some. questions. So here's a couple I have that I would ask yourself. You know, one was the vacation one. ⁓ another in is is every client relationship dependent on you as the principal? So if you if you've got 200 clients, 300 clients, whatever it is, does it all depend on you? And then third is that does every major decision go through you? ⁓ as opposed to the opposite would be you've got people ⁓ on the right seats in the bus doing the right work. And they're empowered to make most of the decisions without you. That would be a business, not a solo practice. So those are some questions I can think of. Any others you'd add to that, Scott?
Scott DiGiammarino: I would just bes without repeating myself, I would just add one that I think is a big one. Is are you a strategic thinker? Okay, so when if you're a strategic thinker, you're aware of where the puck is going. You know about AI, you know about ⁓ what's happening with the younger generation and getting their plans, et cetera, done online. You know, and then and then if you're aware of what's going on, like educating yourself, the question is, what are you doing about it?
Peter Velardi: Mm.
Scott DiGiammarino: Are you making strategic decisions for the long-term health of your business that you've worked your tail off for potentially decades, you know, in order to maximize evaluation? If you, if you're not doing that, I would say that's the first thing you've got to do. And if you need help to your point, we've got this extensive network, plus, you know, we the four of us each have 40 plus years in the business, happy to help and give you some advice.
Peter Velardi: Beautiful. Well said. So let's get into an action offer. You've heard us talk about all these clients we have and what we do for them. But here is an offer. This was one of my clients. This is an LPL, you know, IBD advisor. So this would be an IBD lift out if you're looking for, you know, a category for it. This is somebody doing a little under 1.8 in top line revenue ⁓ with about 265 million of AUM. ⁓ this person is in their early 50s ⁓ and came to us because they have been growing like a weed, but it's starting to get harder. ⁓ and this person has a son they want to bring into the business, ⁓ and he feels like he needs some support with something larger than himself to train that person. So that's one thing. He definitely wants to take chips off the table. And he's ⁓ leaning heavily towards a full acquisition because it really wants to be part of something bigger. ⁓ he really is at a stage where he just wants to do what he wants to do. ⁓ and he doesn't want to do all the things that he doesn't want to do, that he's not great at. ⁓ and I'm sure ⁓ many people in this broadcast ⁓ are in the same boat. So so we matched him up, we got him, ⁓ we'll we'll get him, we're still doing it. Five offers, ⁓ and then what we do is communicate. Repeat all the offers against each other. This is just one offer that I have in my hand. And this is with one of those. This one is through a pure family office-backed super RIA. You'd know them from the Barons top, you know, 100 list. ⁓ they show up in top 10 lists all the time. fastest growing, this and that. ⁓ and they're backed by family offices, which is one capital source. And there's pros and cons of you know, a PE-backed. versus sovereign wealth versus ⁓ a family office type thing but but this is a family office back so they they came to the table saying we love you we want you to be a partner with us ⁓ and that and and here's here's the offer and this is only at the current stage ⁓ of the offer so this is somebody they offered them the the total deal value for a one seven practice with the the future equity Monetization with all the parts came out to ⁓ eighteen million for a one seven practice. ⁓ and here's the breakdown of it. So as far as what is the value of the business now, ⁓ that came out to a little over eight eight, so eight point eight million. There's a retirement plan built into it. That's another bite of the apple that takes it to ten seven. So ⁓ 10 mil million call it for a 17 practice, that comes out to a six times revenue top line in essence for the value of the business. ⁓ pretty, pretty good. And Scott, kind of two to three times what we used to deal with in the past. ⁓ and the way that's going to be paid, ⁓ 4.8 will be paid at the close, ⁓ 70% cash, 30% equity. And that's normal. So about half of Your deal value kind of comes at the close. Some portion in cash, some in equity. Some people think one is more valuable than the other. It just depends on you. ⁓ Then there's an earnout at 24 months, which basically says you need to be at the end of two years, at least at the revenue we bought you at. So that's called the layup earnout. ⁓ Everybody hits it for the most part. That's another two million. So now the person's got. ⁓ close to seven seven million, then there's two growth payments, one at thirty-six months, one at 48 months of about another million. ⁓ that's tied to you growing up to that point on average 10% per year or more. ⁓ which again, most of our clients hit. I don't know that I've got a client, Scott, that hasn't hit all of that. ⁓ and if somebody just grows like you have been, you retain the money, you're gonna hit ⁓
Scott DiGiammarino: Everybody.
Peter Velardi: all of those so you'll get your full you know eight eight of value. The retirement plan is interesting. Mul more and more firms are doing this, which is another bite of the apple will they'll help you contract with your Gen twos, either ones you have, either ones you will have, or some that they have. They'll set up a contract so that that G2 can get and serve your clients and get paid to serve your clients without having to go out and borrow so much that it crushes their cash flow. ⁓ and you will get income on top of everything else. So that's comp so component one is your deal value. Component two is payout. in this case it's a thirty six percent payout to pay advisor comp and your staff ⁓ in in in the beginning. But then they've got a kicker. And we're having more partners do this than ever. ⁓ a lot of because of our ⁓ our work to influence them. ⁓ but with this company, what they're saying is when you've achieved 150% growth. So when he gets to say 2, 2, 2, 3 of Rev, every dollar above that in Rev that he gets, he gets a 50% payout off, which is going to be comparable to the cash flow you get now, because this is in a no expense environment. No hidden charges, no global admin fees. Under that, it's basically clean deals, full transparency. The target won't change every year as your IBD updates their grids and they have margin compression and they squeeze a little here. That does not exist in this world. It's all contractual. ⁓ so part two is ongoing, Cam. From most of our clients, Scott, ⁓ I think you find this that most people grow faster with these deals, and most with the growth they're gonna have as well as maybe them doing an acquisition, sharing that cash flow, don't you find that most clients are kind of up to their net cash flow ⁓ you know, within, you know, two, three years?
Scott DiGiammarino: The the the the the the growth post deal of top not only top line but but bottom line is enormous in almost every case because they're freeing you up a day, day and a half a week, because they're taking the operational stuff off your plate. Imagine having world where you don't have to worry about compliance, marketing, technology upgrades. ⁓ these guys will manage your money for you if you want them to. They'll they'll do all the trading for you. Basically all the little things that drive you nut, most advisors nuts. A lot of these firms will take over. So you could just spend time in front of clients, ⁓ which is what a lot most advisors do best.
Peter Velardi: Yeah, no no doubt. So ⁓ the last piece of kind of the you know the total economic package is equity. And this is a big deal. ⁓ the equity of these firms, anytime an advisor has the opportunity or you have the opportunity to swap some of your what would be moderate to slow growth equity at say a six times rev for the mothership, the firm that's buying you. ⁓ Anytime you can swap your equity, which is valuable to you now and important to monetize well and with the right partner, by any anytime you swap that, you get a great deal because their equity is worth way more than yours. Higher multiple, so your six times might be their 12 times ref, might be their 15 times ref, right? ⁓ and yours is growing by you know eight to twelve to fifteen percent. On average, theirs is growing by twenty percent. or more in some cases 30% or more. So that's where wealth gets created in the space. And as a partner, you'll have in most cases the same share of class as the CEO, the private equity firm, all the players, you get to play with them. And these firms, because of so many partners, this firm has ⁓ I I believe they're 80% or so employee owned. ⁓ and they're and and of of the employees ⁓ A big percentage of that are the financial advisors. So it's everybody's playing for this equity growth. So now you're rowing hard for your team to grow. You're using the company to use their infrastructure, their marketing, their capital to grow faster, get things off your plate, to your point, Scott. But you're rooting for the mothership too. You're you're like, we want them to grow. And they're gonna open these windows about on average every three to five years that you can participate in this offer. What they're saying is all that, we're where are gonna give you ⁓ in in equity, where we're gonna give you we're gonna get give you about two million in equity, and we're gonna give you equity at all the payments, earnouts, et cetera. This company is unique in that even after five years, you and your staff will get more equity in the company. So it builds up, there's a lot of staff, people answering the phones. That are millionaires at this company, because they got you know, they they they got the equity. But they're saying conservatively, that's all gonna add up to twelve million over ten years. ⁓ they will tell you when they make this offer that they think it's gonna happen in five years. I heard that yesterday at three o'clock. ⁓ he said, you know, even though it says that, that assumes we grow, you know, a third of the speed that we're growing now. And we started doing acquisitions in the last two years. So so again. This is just this is real. This is one of five offers. But ⁓ Scott, any quick headlines you heard and all that that you want to pull out of that?
Scott DiGiammarino: I was just gonna say if if you care about your G2s and you care about your staff, this particular off you're talking about ⁓ is a win-win-win for everybody. ⁓ and to your point about everybody rolling in the same direction, we've seen it when staff gets stalk in the mothership or G2s gets stalk in the mothership, all of a sudden ⁓ people start cheering on the mothership to grow.
Peter Velardi: Yeah, no, that that that's true. The only other thing I'd add to that would be that ⁓ for this client, there's there there's a few things he really likes about this offer and offer likes. And one is that, you know, he loves L LPL, he thinks it's a good IBD, ⁓ but he's always wanted to be in the open architecture RIA space, to have access to so he still feels somewhat restricted, even though the tech has improved. ⁓ the certainly the unknowns about What's the impact of the Commonwealth people and what's going on? But all that aside, you can have your own opinion on that. ⁓ he he loves the idea of being with a super money-backed RIA. He does want to do some acquisitions, so he's happy that he's got a firm that's an expert at it and has capital to deploy against it. But the most important thing he told me is that at the end of the day, you know, LPL helps me, but they don't own me. So, you know, I'd like to be owned by somebody and have some of their equity so I can root for them, be something part of it. And and you just can't in the IBD world, ⁓ believe me, we know this world very well from our past. It at certain points of your career can be a great place to be. But the top movement of advisors when we were early on in our career was wirehouse to the IBDs like the LPLs, right? Now the biggest movement is from the IBDs to RIA, because they've got these insanely ⁓ proficient, you know, alt shops, they've got open architecture, ⁓ they've they've got all this planning. They're building family offices that have tax departments, estate planning departments. And so things that you just can't get, that kind of support. But when somebody owns a piece or all of you, they've got a much higher vested interest in your success, and vice versa, and this partner feel. feels really good to everybody. So Scott, anything else you conclude from today ⁓ before we wrap wrap this up?
Scott DiGiammarino: No, really well said. I just think now's the time for self-reflection, reality-based conversation. The market is hotter than it's ever been. It's more creative than it's ever been. There's some incredible opportunities out there. You may get out there with us, spend six to nine months looking at the end of the day, decide to stay put, and that's cool. But at least you'll have a really good sense of what the drivers are in your business to ring the bell on the valuation side, and more importantly, Understand what's in it not only for yourself but your staff and your clients.
Peter Velardi: Well said. I would like to thank everybody for listening to this podcast. We are here to help. Go check out our website, JPTD Partners. All sorts of cool stuff you can see there. Actual offers like this one, ⁓ actual cases, before and afters. You can get a business valuation on the website ⁓ sent to you for what we think from the information you share, your practice may be worth today. ⁓ and lots of other resources and things that you can hear to give yourself an education to do that reflection and stay self-aware. So thanks for being on Scott. Always a pleasure. And ⁓ thank you everybody for taking the time to listen.
Peter Velardi: Well, hello, everybody, to the Monetized Advisor brought to you by JPTD Partners. This is the podcast where we talk about how financial advisors grow, protect, and ultimately monetize the value of their business. I am Peter Villardi. I am one of the founding partners of JPTD Partners. I am the P, ⁓ and with me is ⁓ a partner in crime out of four of us. ⁓ also a founding member of JPTD. He is the D in JPTD, Scott DJamarino. ⁓ Scott, welcome and it's ⁓ it's a blast as always to have you with me partnering today.
Scott DiGiammarino: Thanks, Peter. It's gonna take excited to rock and roll today.
Peter Velardi: Yes, yes. We've got a lot of things to do. The primary meat of today's podcast, as you can see in the title, ⁓ is kind of the solo advisors problem. ⁓ Why most advisors under 100 million in AUM struggle to sell and exit. So we're going to kind of push that around as the meat. Before that, we're going to do a quick article review to give you an idea of what's going on in the RIA space. Amongst others, there's RIA, there's the IBD, there's hybrids, there's the Wirehouse. ⁓ we're gonna take a little bit of time to focus on the RIA space today. we'll hit the meet that we're talking about. We always do an advisor red flag, which is kind of one issue. We want to give you some information to help you solve. Today, the problem we want to help you solve is what do I do if I wake up and my practice in business depends entirely on me? ⁓ to the point I can't take a vacation, things start to, you know, the wheels come off the bus. What do you do about that? Why is that a problem? What do you do about it? ⁓ and then lastly, ⁓ we find our listeners really enjoy hearing actual real offers by acquirers ⁓ and what they look like for our clients. So we'll walk you through a real offer and you can kind of see the pieces of it, the terms. There's a lot of education and nuance in those ⁓ that we can help you see what it could look like for you at some point down the road. So that's the agenda. ⁓ that's my story, and we're sticking to it. ⁓ Scott, let's start with the article. The article today ⁓ was in Citywire, June 29th. So if you want to look at it, ⁓ it's by a dude named Alec Rich. ⁓ and the title of it is It Has Gotten Much More Competitive. ⁓ How Much Longer Can RIA's Rocket Ship Rise Persist? And it's all about the massive growth that's happened. Because private equity started paying attention to our space, you know, X years ago, entered, family offices entered, sovereign wealth, taking bites of these super think barren top 200 RIAs, and they've been buying up the next layer, and that layer is buying up this layer. And now it's no longer just about organic growth, sleepy growth. It's about if you're not kind of doing that and inorganic acquisitions. gonna be harder to compete. Sort of feeling, Scott, like in other industries, I'll just take the hardware where you know Home Depot and Lowe's maybe coming into your town and a town near you, you're the little guy in the corner, ⁓ you know, recognizing that is gonna be important. Doing something about it is gonna be important. But my question to you, Scott, is you know, does all that add up in your mind to say, you know, are the days of just, you know, average growth ⁓ easy growth are those days over because it's going to heat up and get even more competitive for some of these smaller firms.
Scott DiGiammarino: ⁓ well, you know, great question. So it's it's interesting. We started JPTD what seven years ago plus. and we started seeing the multiples, the four to eight X's on top line, or the or the six eight to sixteen X on eBay, like there's no way in the world this thing lasts. We thought it was a blip, right? ⁓ by the way, especially with an advisor could stick around forever and ever and ever. And ⁓ today, seven years later, the market is raging more than ever. The competition for talent, the
Peter Velardi: Yes. Mm.
Scott DiGiammarino: Competition for clients, a competition for AUM is incredible. And the creativity and the innovation and the services that are being offered to advisors by these big private equity-backed firms is so compelling. Because it frees people up a day, day and a half a week. It gets them generational wealth, and they can continue to practice in perpetuity. And I'm afraid that smaller firms. That don't have this type of backing. And by the I'm not talking about I can go to a bank and get a loan. You know, because you just won't be able to compete. I'm I'm afraid for those folks because they may get left in the dust, especially when it comes to a market. At some point in time, we all know there's gonna be a correction. And in in for the last what, 20 years, 15, 20 years, most practices have lived and died on market growth. Because organically they're only able to grow by single digits. And I'm a concern the fact that at some point in time when we have this recession or we have this adjustment to the markets, like history has always done, how these folks are gonna survive.
Peter Velardi: Yeah, well I think that's a great point. And ⁓ it's quite possible that there's gonna be a wider gap between kind of the haves and have nots, right? So it's gonna be ⁓ exponential because there's kind of two forces happening at the same time, right? We've got this whole massive industry consolidation, and all these firms, these bigger firms, are playing for two things because now they've got capital. So they're taking some of the capital and they're saying, let's invest that. In our infrastructure to better attract advisors that want to deliver more to clients. So they're creating these insanely family office-like value props for advisors for them to prosper, the G1s to prosper, the G2s to prosper, the stack, and they're providing these rich rewards in all three parts of the deals we do, which is upfront to de-risk at ridiculous multiples. Ongoing compensation and then kind of the ⁓ golden or the gold under the hill is the equity in their company. They're willingly sharing it now and creating these partner tracks. And so that's one use case, and we have to compete with that if we're a small practice, right? ⁓ but the second is they are all doing massive value expansion for clients because the second big trend is AI is nipping at everybody's heels right now, right? And there's a lot of fear out there. ⁓ and understanding growing awareness that AI can probably do right now, five out of 10 tasks an advisor can do. Fortunately, it doesn't look like it'll ever be able to do three or four of the most important ones. And because there is a shortage still right now of a hundred thousand plus advisors, that there's still a beautiful career ahead for a financial advisor, right? But if a smaller firm isn't expanding value, So that you can at least charge the same fees that you're charging. But there's gonna be compression against that because firms are gonna, clients are gonna say, hey, you know what? I can probably get an asset allocation done by Chat GPT. So why pay my advisor to do that? This is what's going on. So I think the little guy who's just been conditioned in the past just to grow a bit above market, you know, reach that kind of stage of lifestyle and complacency. I think it's gonna be you're either growing or you're dying is gonna be what's gonna start to happen, in my opinion. And ⁓ you're gonna have to play harder and maybe even think about not just growing organically traditionally, but doing things like some acquisitions. What do you think?
Scott DiGiammarino: Yeah. But like I ⁓ gosh, where do I start? I had a call from a really good friend of mine ⁓ over the weekend. You know, happy Fourth of July, dah dah dah, what's going on? super interesting. ⁓ they said, Hey, I got a new financial advisor that wants me wants to charge me five thousand dollars to do per year to to update my financial plan. Should I do it? So I said, Well, you could certainly pay that. I the value of that. You and I grew up at American Express and AmeriPrize, that's what we did financial planning. I said, He says, well, what goes, what if I went on chat or Claude and just plugged in all my data? Could I get the same results? So I said, well, give it shot. He called me an hour later and said the results from Claude were not only the same, but more intuitive, better than the financial plan he paid for $5,000 for the year before and the year before that. He says, why would I ever pay that fee? That is going to happen over and over and over again.
Peter Velardi: Mm-hmm.
Scott DiGiammarino: So, this revenue source by his particular advisor, he's gonna see shrinkage unless, of course, he's starting to add additional value ads that clients want. Estate planning, tax planning, ⁓ only help you plan your vacation. It's a lot more than asset allocation, and let's compare the our returns to what an index is. And I think I think clients are demanding more and more of the advisor.
Peter Velardi: Right.
Scott DiGiammarino: And if the advisor doesn't pivot and un you know, based on what demand actually is, they're gonna start seeing outflows, which is gonna crush their valuations down the road. That's why a lot of people, ⁓ a lot of advisors are are but selling a piece of their business, if not all of their business, to get access to these services that won't cost them a dime. It's much better to to to to join a firm that offers these services. to retain the clients and get more assets than to build it, especially if if you don't have a capital source in order to help you build it.
Peter Velardi: Yeah, and this is not unpredictable stuff. This has been going on in industries for a very long time. I have a lot of friends, as you do, Scott, that are, you know, orthopedic surgeons, dentists. This has been going on in their industry. They all were faced with a choice as a small business, ⁓ small, you know, surgery operation, super profitable at the time, right? Making lots of dough, but starting to see the consolidation happen. And every one of them now is with a larger firm. ⁓ and and firm that bought out a piece or all of it, so they're able to cash out, and now they're happy as you know what, because they get to just spend their time doing what they love to do. Same thing's going on in our industry. And so it's not, this is not any big surprise. There's lots of data on this. It just comes down to scale is becoming an even and increasingly valuable thing to have. in this new place. So put it put it another way, the little guy is gonna have a harder and harder time competing. So the headline is where you end it, Scott, which is at the end of the day, if you're small, you need to think about how I get large. And how I get li large either on my own, which means you're gonna have to invest more, hire more, build more infrastructure, and do it fast, because all this is moving very fast. Or you're gonna have to think about a merger of sorts. with a larger infrastructure to organization and just tap into all that. And ⁓ by the way, you know, if you've got ⁓ a practice and let's say it's a house and it's the peak of the real estate market right now in MA and you have this house with 10 rooms and you only need three rooms of that house, well go and sell the other rooms and hold on to the three that you use. That's fine too. We we do ⁓ all sorts of deals, minority, majority full. One there's no one size fits all. So Just think it's it's a wake up call for people to say, hey, let me at the very least be reflective. We're halfway through the year, take a step back. If you want to have a conversation with one of our partners, to say, hey, this is where I'm at with that. What do you think? We'll we'll tell you the true scoop. We see we talk to 10, 15 folks a day ⁓ in certain times of what we do who are all going through the same thing that you're going through. So ⁓ please.
Scott DiGiammarino: Yeah, I'll I'll add one more thing, Peter. It's funny, ⁓ going back to trends. When we first started this, we thought our average age client would be seven years old. You know, take the money, hit a beach. ⁓ it's not. Our average age client's 48. ⁓ and they all have a five, 10, 15 year run in them. So, so the younger generation is getting what you're talking about, ⁓ which is all about let's take some chips off the table, create some generational wealth, make make my life easier so I can get
Peter Velardi: Mm-hmm.
Scott DiGiammarino: Deeper share of wall with existing clients, get new clients, and God forbid, take a very well-deserved vacation and not have to worry as much about the business.
Peter Velardi: Yeah, we do. We've got a lot of ⁓ youngsters ⁓ at our age that come to us saying, you know, it's not that I want to sell anything, it's just that I wanna get to my highest and best use. I wanna free up some time to spend with the family. ⁓ and I know valuations are insane. I've worked my whole life, and maybe I woke up this morning and my business is worth 80% of my net worth, and I'm my worst client. So perhaps that's why I should do it. Because I know I'm gonna to compete with the big boys down the road. And they're saying to us, it's getting harder to run a business. It's getting harder to expand client value. Why not choose easy over heart? So ⁓ that that's a good wrap on that. All right, cool. So Scott, why do most advisors struggle? who, you know, maybe have a hundred million or less of assets? Why do they struggle to sell? We see a lot of those tuck-ins come to us.
Scott DiGiammarino: Yes.
Peter Velardi: ⁓ we do I think better than most helping them find a a buyer, but it is harder. ⁓ and it's harder for them and without working with somebody like us it's gotta be really hard. But why is that in your
Scott DiGiammarino: I th I think there's a couple of reasons. I mean, one is a lot of advisors that are under a hundred million run it like a financial advisor versus running it like a business. So a business, you have infrastructure in place. You have staff, you have systems, you have processes, by the way, all written down by the way, so you can scale the business. If if you're by yourself.
Peter Velardi: Hm.
Scott DiGiammarino: And everything, all the decisions, all the processes are predicated on you actually executing, then it's harder to, you're not as attractive out there. Now, that being said, you know, we I don't think we've ever done a deal sell to Forex on top line revenue, ⁓ you know, between upfront plus earnouts, not including compensation, not including stock swaps, et cetera. So we found we have built a market for those types of individuals, but People always say, what's the difference between a four and an 8X on top line? It's what we're talking about. It's the, it's the, it's, it's the running it like a business. It's having a history of growth. It's having desire to grow because the buyers, we have like 120 of them right now. The buyers are gonna pay a crazy number, but down the road, they're gonna flip it for two, three, four, five times that number, and they're gonna live on that arbitrage. The only way in the world that's gonna work for them is if they're growing. So they're looking for firms that want to grow and have that infrastructure, number one. And then number two, I think it's a post-deal compensation issue. So if you're a million-dollar producer, let's say you're spending 20% or 25% of overhead into your business, you know, you're you're so you're basically taking home six or seven hundred thousand dollars a year. If you sell, we might be able to get you, say, five or six million dollars.
Peter Velardi: Hmm.
Scott DiGiammarino: But you're probably getting a third of the compensation you were getting before you sold. Now, the buyers in that case are usually, it's a W-2 deal, so they'll pay 100% of the expense. So net on net, it may be the same or close to. But it's a lifestyle choice post-deal to make sure that you can maintain maintain the lifestyle that you're accustomed to without having to tap into the five, six, seven million dollars we might have gotten you on consideration.
Peter Velardi: Yeah, and that's all ⁓ again, there's no mystery in any of that, right? You know, when a business is looking to buy something, ⁓ they are buying a business, not a practice. They're not buying a book of business. They are buying a business because what any industry, any firm is buying when they buy a business, they're they're predicting and buying future cash flow in the business, future EBITDA, EBOC. ⁓ they're buying it. Believing that they can expand margins by leveraging their infrastructure and that it's going to grow faster under them than when it was in the past. And if that happens, everybody wins. Clients win, ⁓ the sell side wins, the buy side wins. And that's why we have so much fun doing this, right? ⁓ but, and there's a big butt there, you have to have a business. So, questions to ask yourselves would be things like: if I went on a one-month vacation. Would I come back to a fully ⁓ functioning business? And would we still be going northeast instead of northwest or southwest or southeast? ⁓ are we still growing? ⁓ and if the answer is heck no, I could never do that. I can't even leave for a weekend, forget about a week or a month, then that tells you maybe you've got a problem. ⁓ so this whole idea of founder dependency will hurt your value. The more things, and it's like anything else, whether you're a dental firm, a widget firm. The more the business depends on one principle, the less valuable it is because it's too much variation in human behavior. There's so many things in life that affects one person. But if you have systems, infrastructure, redundancy, forms of automation, you've got a business, not a business that depends on one person. Now you've got something that becomes way more predictable in terms of cash flow. ⁓ so, Scott, if you're small. ⁓ and you're like, man, I I'm I'm I'm one of those guys. I'm solo shop. I got one part-time staff. ⁓ you know, what would you suggest they do? What what would be kind of the choice set that they would have that they should really think about doing to put themselves in a better position to win and compete?
Scott DiGiammarino: Well, wh whenever you val whenever our buyers value a business, they look at all these different variables, right? And we've talked about a couple of them, like running like a business and have a history of growth. But ⁓ it's things like ⁓ are you at eighty-five, ninety percent recurring revenue, or are you just doing commission-based business? ⁓ obviously the the former gets a higher multiple. ⁓ do you do ongoing financial planning? I ⁓ what we found, whether it's through Claude or Chatter or your or the O or the OG fashion, we have found that when you do ongoing financial planning, you get seven times the assets. ⁓ take a look at what your your client age group is. If more than 30% are over the age of 70, do you have their kids or grandkids as clients? Because because it RMDs and people passing away, you the risk of outflows are higher. ⁓ Don't kid yourself if you're 50 years or older and you've done, let's say, a million dollars of revenue after 30 years and say, I'm gonna double in the next five years. Because it took you 30 years to get to one point. So have a reality-based conversation with yourself about the business and where it's going and what you need to do to get to that next level. And finally, I would say, you know, give us a call. You know, we we see 20 deals a week. We can give you a real good sense of what the market. Is for your business at this point in time, tell you about the good, the bad, the ugly. And quite frankly, we could basically tell you whether or not you're marketable and maybe even consult with you a little bit about what you need to do over the next couple of years so that you can ring the bell in terms of valuation and quote unquote having it all, where you can you could sell it your terms, you could stay as long as you want, and you could enhance the business like the business deserves to be enhanced.
Peter Velardi: Yeah, I think those are great ideas. I think ⁓ what I would say in addition to that is that for sure, feel free to call us and we can get a quick assessment. But step by step, what Scott's suggesting is first be self-aware. And again, this is a great time of year, about halfway or so through the year, depending on when you're listening to this podcast. And great time to take a step back and basically say, Is that me? Are they talking to me? And if it's you and you're like, yeah, I may have some threats that I don't perceive right now that I need to pay attention to. I just can't keep on doing exactly what I'm doing. I've got to make some changes, but I don't know what they are. That's a beautiful place to start. And then second, get some help. You can call us and we can give you a sense. We also work with ⁓ teams of some of the best advisor coaches in the industry who can help you specifically form the plan, execute the plan, coach you through it. ⁓ and that could include working with us if the best path for you, and it may not be, is to bring in a strategic partner so you can use their infrastructure, their expertise, their marketing, their capital if you want to do acquisitions. All that is something that we can turn the switch on quickly. My advice, if if there is any advice in here, Scott, ⁓ that I think you would support is get help. Don't don't be alone. Don't be a solo advisor and stay alone. Bring something, some other element in that can give you that reality check to say, no, you keep doing this. Here's what I would predict happen. That's if those are the outcomes you want, great. If not, let's take take a step back at it. So ⁓ that's great. So that kind of leads us into the advisor red flag part. I think we've we're kind of all over it, but this is all about, you know, this issue of the practice depending on you. so I think we can help them, Scott, maybe through some. questions. So here's a couple I have that I would ask yourself. You know, one was the vacation one. ⁓ another in is is every client relationship dependent on you as the principal? So if you if you've got 200 clients, 300 clients, whatever it is, does it all depend on you? And then third is that does every major decision go through you? ⁓ as opposed to the opposite would be you've got people ⁓ on the right seats in the bus doing the right work. And they're empowered to make most of the decisions without you. That would be a business, not a solo practice. So those are some questions I can think of. Any others you'd add to that, Scott?
Scott DiGiammarino: I would just bes without repeating myself, I would just add one that I think is a big one. Is are you a strategic thinker? Okay, so when if you're a strategic thinker, you're aware of where the puck is going. You know about AI, you know about ⁓ what's happening with the younger generation and getting their plans, et cetera, done online. You know, and then and then if you're aware of what's going on, like educating yourself, the question is, what are you doing about it?
Peter Velardi: Mm.
Scott DiGiammarino: Are you making strategic decisions for the long-term health of your business that you've worked your tail off for potentially decades, you know, in order to maximize evaluation? If you, if you're not doing that, I would say that's the first thing you've got to do. And if you need help to your point, we've got this extensive network, plus, you know, we the four of us each have 40 plus years in the business, happy to help and give you some advice.
Peter Velardi: Beautiful. Well said. So let's get into an action offer. You've heard us talk about all these clients we have and what we do for them. But here is an offer. This was one of my clients. This is an LPL, you know, IBD advisor. So this would be an IBD lift out if you're looking for, you know, a category for it. This is somebody doing a little under 1.8 in top line revenue ⁓ with about 265 million of AUM. ⁓ this person is in their early 50s ⁓ and came to us because they have been growing like a weed, but it's starting to get harder. ⁓ and this person has a son they want to bring into the business, ⁓ and he feels like he needs some support with something larger than himself to train that person. So that's one thing. He definitely wants to take chips off the table. And he's ⁓ leaning heavily towards a full acquisition because it really wants to be part of something bigger. ⁓ he really is at a stage where he just wants to do what he wants to do. ⁓ and he doesn't want to do all the things that he doesn't want to do, that he's not great at. ⁓ and I'm sure ⁓ many people in this broadcast ⁓ are in the same boat. So so we matched him up, we got him, ⁓ we'll we'll get him, we're still doing it. Five offers, ⁓ and then what we do is communicate. Repeat all the offers against each other. This is just one offer that I have in my hand. And this is with one of those. This one is through a pure family office-backed super RIA. You'd know them from the Barons top, you know, 100 list. ⁓ they show up in top 10 lists all the time. fastest growing, this and that. ⁓ and they're backed by family offices, which is one capital source. And there's pros and cons of you know, a PE-backed. versus sovereign wealth versus ⁓ a family office type thing but but this is a family office back so they they came to the table saying we love you we want you to be a partner with us ⁓ and that and and here's here's the offer and this is only at the current stage ⁓ of the offer so this is somebody they offered them the the total deal value for a one seven practice with the the future equity Monetization with all the parts came out to ⁓ eighteen million for a one seven practice. ⁓ and here's the breakdown of it. So as far as what is the value of the business now, ⁓ that came out to a little over eight eight, so eight point eight million. There's a retirement plan built into it. That's another bite of the apple that takes it to ten seven. So ⁓ 10 mil million call it for a 17 practice, that comes out to a six times revenue top line in essence for the value of the business. ⁓ pretty, pretty good. And Scott, kind of two to three times what we used to deal with in the past. ⁓ and the way that's going to be paid, ⁓ 4.8 will be paid at the close, ⁓ 70% cash, 30% equity. And that's normal. So about half of Your deal value kind of comes at the close. Some portion in cash, some in equity. Some people think one is more valuable than the other. It just depends on you. ⁓ Then there's an earnout at 24 months, which basically says you need to be at the end of two years, at least at the revenue we bought you at. So that's called the layup earnout. ⁓ Everybody hits it for the most part. That's another two million. So now the person's got. ⁓ close to seven seven million, then there's two growth payments, one at thirty-six months, one at 48 months of about another million. ⁓ that's tied to you growing up to that point on average 10% per year or more. ⁓ which again, most of our clients hit. I don't know that I've got a client, Scott, that hasn't hit all of that. ⁓ and if somebody just grows like you have been, you retain the money, you're gonna hit ⁓
Scott DiGiammarino: Everybody.
Peter Velardi: all of those so you'll get your full you know eight eight of value. The retirement plan is interesting. Mul more and more firms are doing this, which is another bite of the apple will they'll help you contract with your Gen twos, either ones you have, either ones you will have, or some that they have. They'll set up a contract so that that G2 can get and serve your clients and get paid to serve your clients without having to go out and borrow so much that it crushes their cash flow. ⁓ and you will get income on top of everything else. So that's comp so component one is your deal value. Component two is payout. in this case it's a thirty six percent payout to pay advisor comp and your staff ⁓ in in in the beginning. But then they've got a kicker. And we're having more partners do this than ever. ⁓ a lot of because of our ⁓ our work to influence them. ⁓ but with this company, what they're saying is when you've achieved 150% growth. So when he gets to say 2, 2, 2, 3 of Rev, every dollar above that in Rev that he gets, he gets a 50% payout off, which is going to be comparable to the cash flow you get now, because this is in a no expense environment. No hidden charges, no global admin fees. Under that, it's basically clean deals, full transparency. The target won't change every year as your IBD updates their grids and they have margin compression and they squeeze a little here. That does not exist in this world. It's all contractual. ⁓ so part two is ongoing, Cam. From most of our clients, Scott, ⁓ I think you find this that most people grow faster with these deals, and most with the growth they're gonna have as well as maybe them doing an acquisition, sharing that cash flow, don't you find that most clients are kind of up to their net cash flow ⁓ you know, within, you know, two, three years?
Scott DiGiammarino: The the the the the the growth post deal of top not only top line but but bottom line is enormous in almost every case because they're freeing you up a day, day and a half a week, because they're taking the operational stuff off your plate. Imagine having world where you don't have to worry about compliance, marketing, technology upgrades. ⁓ these guys will manage your money for you if you want them to. They'll they'll do all the trading for you. Basically all the little things that drive you nut, most advisors nuts. A lot of these firms will take over. So you could just spend time in front of clients, ⁓ which is what a lot most advisors do best.
Peter Velardi: Yeah, no no doubt. So ⁓ the last piece of kind of the you know the total economic package is equity. And this is a big deal. ⁓ the equity of these firms, anytime an advisor has the opportunity or you have the opportunity to swap some of your what would be moderate to slow growth equity at say a six times rev for the mothership, the firm that's buying you. ⁓ Anytime you can swap your equity, which is valuable to you now and important to monetize well and with the right partner, by any anytime you swap that, you get a great deal because their equity is worth way more than yours. Higher multiple, so your six times might be their 12 times ref, might be their 15 times ref, right? ⁓ and yours is growing by you know eight to twelve to fifteen percent. On average, theirs is growing by twenty percent. or more in some cases 30% or more. So that's where wealth gets created in the space. And as a partner, you'll have in most cases the same share of class as the CEO, the private equity firm, all the players, you get to play with them. And these firms, because of so many partners, this firm has ⁓ I I believe they're 80% or so employee owned. ⁓ and they're and and of of the employees ⁓ A big percentage of that are the financial advisors. So it's everybody's playing for this equity growth. So now you're rowing hard for your team to grow. You're using the company to use their infrastructure, their marketing, their capital to grow faster, get things off your plate, to your point, Scott. But you're rooting for the mothership too. You're you're like, we want them to grow. And they're gonna open these windows about on average every three to five years that you can participate in this offer. What they're saying is all that, we're where are gonna give you ⁓ in in equity, where we're gonna give you we're gonna get give you about two million in equity, and we're gonna give you equity at all the payments, earnouts, et cetera. This company is unique in that even after five years, you and your staff will get more equity in the company. So it builds up, there's a lot of staff, people answering the phones. That are millionaires at this company, because they got you know, they they they got the equity. But they're saying conservatively, that's all gonna add up to twelve million over ten years. ⁓ they will tell you when they make this offer that they think it's gonna happen in five years. I heard that yesterday at three o'clock. ⁓ he said, you know, even though it says that, that assumes we grow, you know, a third of the speed that we're growing now. And we started doing acquisitions in the last two years. So so again. This is just this is real. This is one of five offers. But ⁓ Scott, any quick headlines you heard and all that that you want to pull out of that?
Scott DiGiammarino: I was just gonna say if if you care about your G2s and you care about your staff, this particular off you're talking about ⁓ is a win-win-win for everybody. ⁓ and to your point about everybody rolling in the same direction, we've seen it when staff gets stalk in the mothership or G2s gets stalk in the mothership, all of a sudden ⁓ people start cheering on the mothership to grow.
Peter Velardi: Yeah, no, that that that's true. The only other thing I'd add to that would be that ⁓ for this client, there's there there's a few things he really likes about this offer and offer likes. And one is that, you know, he loves L LPL, he thinks it's a good IBD, ⁓ but he's always wanted to be in the open architecture RIA space, to have access to so he still feels somewhat restricted, even though the tech has improved. ⁓ the certainly the unknowns about What's the impact of the Commonwealth people and what's going on? But all that aside, you can have your own opinion on that. ⁓ he he loves the idea of being with a super money-backed RIA. He does want to do some acquisitions, so he's happy that he's got a firm that's an expert at it and has capital to deploy against it. But the most important thing he told me is that at the end of the day, you know, LPL helps me, but they don't own me. So, you know, I'd like to be owned by somebody and have some of their equity so I can root for them, be something part of it. And and you just can't in the IBD world, ⁓ believe me, we know this world very well from our past. It at certain points of your career can be a great place to be. But the top movement of advisors when we were early on in our career was wirehouse to the IBDs like the LPLs, right? Now the biggest movement is from the IBDs to RIA, because they've got these insanely ⁓ proficient, you know, alt shops, they've got open architecture, ⁓ they've they've got all this planning. They're building family offices that have tax departments, estate planning departments. And so things that you just can't get, that kind of support. But when somebody owns a piece or all of you, they've got a much higher vested interest in your success, and vice versa, and this partner feel. feels really good to everybody. So Scott, anything else you conclude from today ⁓ before we wrap wrap this up?
Scott DiGiammarino: No, really well said. I just think now's the time for self-reflection, reality-based conversation. The market is hotter than it's ever been. It's more creative than it's ever been. There's some incredible opportunities out there. You may get out there with us, spend six to nine months looking at the end of the day, decide to stay put, and that's cool. But at least you'll have a really good sense of what the drivers are in your business to ring the bell on the valuation side, and more importantly, Understand what's in it not only for yourself but your staff and your clients.
Peter Velardi: Well said. I would like to thank everybody for listening to this podcast. We are here to help. Go check out our website, JPTD Partners. All sorts of cool stuff you can see there. Actual offers like this one, ⁓ actual cases, before and afters. You can get a business valuation on the website ⁓ sent to you for what we think from the information you share, your practice may be worth today. ⁓ and lots of other resources and things that you can hear to give yourself an education to do that reflection and stay self-aware. So thanks for being on Scott. Always a pleasure. And ⁓ thank you everybody for taking the time to listen.
