There are some increasingly clear lines being drawn in the rapidly growing world of managed accounts. One of them relates to whether wealth managers are practices or businesses. “What ?” you may ask, or “Why does it matter ?”. Let me try and explain:
- Practices are often charcterised by their principals and often have ‘succession’ issues as often a lot of the value is lost when the principals leave (who would go to Smith and Partners if Mr Smith may no longer be there ?). Because of this, they often trade at values or multiples of profit / revenue that are lower than businesses.
- Businesses are often characterized by brand and their product, which can be passed on from owner to owner. Businesses are often less ‘personal’ but fulfil an important utility value to their customers. Because of such, they trade at larger values in terms of multiples of profit and revenue. They have broken often the link between owner and management.
– Practice – often promoters of other providers’ managed account offers, or service clients on a 1 to 1 basis
– Business – often operators of a managed account offer that can be promoted via client attraction and servicing channels, or other firms (often practices)
Thankyou to my friends Creel Price and Matt Church for some of the background around practices and businesses.