The ongoing pursuit of inorganic growth has transformed the conversations and expectations between financial advisors looking to transition and the aggregators/wealth management firms competing for their businesses. One important consequence of this shift: the growing role of offering an equity stake in a firm as a selling point to lure top advisor talent.

In this increasingly competitive recruiting environment, it’s become readily apparent that firms hoping to attract quality financial advisors need creative compensation, and offering equity is a popular option among innovative players in the space. So, the question becomes:

Are the “show me the money” days waning in the face of rising RIA consolidation and an aging advisor population?

Indications are “yes.” Here’s why.

Equity is a compelling enticement, offering advisors an opportunity for substantial wealth creation down the road. In particular, IARs with a shorter runway in the industry will view owning their book of business in addition to having an ownership stake in the RIA they are affiliated with as a win-win. For advisors in their 40s and 50s who are looking to benefit from a potential liquidity event in the future… the proverbial second bite of the apple… or leverage a more formal path to partnership, equity ownership in their new firm is a golden opportunity that is hard to dismiss.

For the firm, equity ownership is a powerful retention tool and creates deeper alignment of interests and goals among all parties. And those are all good things. But now you ask:

Why not so good?

With elevated valuations, recruits may question the bang for the buck they may expect if they choose to take an equity signing bonus. On the heels of a disappointing 2022, most leaders in the RIA sector anticipate valuations will continue to drop this year as higher interest rates and a volatile stock market hit firms hard. Yes, there’s been a bit of a correction, but the industry remains strapped into the valuation roller coaster. And, as M&A activity picks up – and it will –higher valuations will follow.

But let’s be real, there’s a reason we say cash is king: there’s no delayed gratification and it comes with a known value (notwithstanding the vagaries of inflation). A combination of cash and equity might balance the scales, offering a best-of-both-worlds scenario for advisors weighing their options. All of this leads an advisor considering a transition to wonder:

So, should financial advisors consider taking equity in firms they are being recruited to in lieu of cash transition bonuses?

As with most things in our industry, it’s a personal decision that requires introspection and perhaps the support of an objective third party to help weigh the pros and cons.

Over the last two years, Bridgemark Strategies has helped hundreds of advisors curate, evaluate and negotiate their next transition. Our clients have joined over 40 different broker-dealers or RIAs, providing us with a deep understanding of the opportunities and challenges of various firms across the industry.

And we can help you.

Are you considering a transition? Put the Bridgemark Strategies team to work for you. With our experienced consultants in your corner, you’ll save time, money and stress, confident that proven experts are guiding your search. This is a business transaction that can be counted among the most important of your life.

Don’t go it alone.