Wealth management's evolving take on 'location, location, location'

Wealth management's geographic landscape is shifting from big cities to the entire country, according to one of the industry's top dealmakers.

Despite the higher shares of population and wealth that drive the number of financial advisors, asset levels and property values in places like New York, California and Florida and other big metropolitan areas, the traditional and simple industry emphasis on cities that have National Football League teams is falling by the wayside, said Jim Cahn, the chair of the Investment Committee and chief strategy officer with Wealth Enhancement. The private equity-backed, Plymouth, Minnesota-based acquirer of registered investment advisory firms has topped $96 billion in client assets while altering its approach to the geographic factors in dealmaking and new client lead generation in particular regions, Cahn said in an interview.  

"We went to Chicago first, and we also had concentrations on the East Coast, because that's where there were concentrations of people," he said. "There are wealth management clients in all parts of the country. You have a lot more advisors, but you also have a lot more people who need advisors. The truth is, there really isn't a bad market."

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However, the location of an advisory firm is one of many factors driving how much potential buyers are willing to pay to acquire it, according to a webinar held last month by M&A consultancy Succession Resource Group on its annual study of RIA transactions. 

Out-of-state buyers carried out a third of transactions last year, which is a larger share than in 2023, and they paid purchase prices that were 11% higher than the amount forked over by those from the same state. The out-of-state premium was even larger, at 16%, in deals struck between 2020 and 2024, Parker Finot, Succession Resource's director of transaction advisory services, noted during the webinar. During that span, RIAs in the Northeast fetched the highest average price multiple compared to yearly revenue, 3.09x, followed by the South (3.07x), the West (2.9x) and the Midwest (2.7x).

"We have observed some shifting in a reduction to southern multiples over time, and the multiples of the West and the Midwest regions increasing over time," Finot said. "That out-of- state price premium does still exist during this time frame. In fact, it was elevated to compared to what we've seen in 2024, and we've really determined that that was driven by higher price asymmetry in '21 and '22 during that period of time when the world was really reacting and acclimating to the post-pandemic reality, working from home, office closures, all of those types of things. There was just a little bit more fervor for these remote acquisitions. But it's cooled slightly since then." 

Regardless, those figures reflected "a broad brush, and individual results are going to vary from across the region, state, county and city levels," Finot said.

How housing data can shed a light on RIA growth

A ranking of metropolitan areas with the largest number of homes of above average value per square mile might, then, offer a more precise geographic lens for potential RIA acquisitions or prospective customers. Using data from real estate databases, luxury bathroom product firm Badeloft found last month that Miami had more than double the number of high-value homes per square mile than any other metro area, with 105.44. The other cities in the top 10 — New York (38.03), Las Vegas (26.08), Philadelphia (23.93), Washington, D.C. (17.93), Boston (14.42), San Antonio (14), Detroit (13), Chicago (12.12) and Honolulu (12.08) — had far fewer. 

Beyond the property-tax ramifications to client's plans and an understanding of local real estate dynamics, the value of an area's housing stock won't sway wealth management dealmakers very much or offer advisors many hints about where to approach prospective customers, Cahn said. Perhaps using publicly available data tracking a home's value compared to the size of the mortgage could suggest some trends relevant to finding out which households have a large number of savings and investable assets, he suggested. The high property values in an area like Miami may also come with high rates of foreclosure in the bursting of a real estate bubble.

And Wealth Enhancement's clients tend to focus much more on their families, careers, emotional state and involvement in their communities than on buying a pricey home, Cahn said.

"How people live doesn't tell you as much about their investable assets as you might expect," he said. "For the types of wealth management clients that we're serving, I don't think we can rely on a sort of mansion index."

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The exurban trend in wealth management

On the other hand, Cahn has noticed more deals involving advisory practices from exurban areas and those with local and regional expertise that are sought by clients. For example, Wealth Enhancement's vast and growing network of independent advisory teams include at least a couple catering to Mandarin speakers in parts of California and Texas, and he recalled how a radio show that was successful in generating new customer leads in Minnesota "didn't have the outcomes we expected" in Connecticut. 

The exurban trend extends to areas that are about a two to four hours' drive from cities like Atlanta or regions such as upstate New York and Charleston, West Virginia that "still identify with the city, but they also have their own identity," he said. The residents likely root for the city's NFL team and tell those from outside of the area that they're from there. Some of those parts of the country are "maybe a little underserved, or have smaller firms that don't have the depth of resources that we have," Cahn said.

"Understanding your community, understanding how to market your community," is a critical part of advisors' value to clients and possible acquisition partners alike, he said. "Being part of the community — not just someone who uses the community — is really critical."