There are more than 12,000 RIAs in the United States¹. At many of those RIAs, the CEO founders are approaching the inevitable exit from their businesses. With M&A activity in the industry robust, the time to seriously explore a potential sale or transition is now.
But where to start?
We recently connected with David Karp, Founding Partner of PagnatoKarp Partners, a $2.3 billion RIA that Cresset acquired in June of 2020, to discuss the process he went through to prepare his firm … and himself … for the transition.
David, how did you know when it was time to sell your firm and partner with Cresset? What was the catalyst for that decision?
David: Well, you never absolutely know it’s time. For RIA founders like me, the firm is your baby after all. That said, you do know when you’ve met the right partner. It’s almost like when you meet your future spouse. You just know.
At PagnatoKarp, we had a phenomenal business, but being “all in” financially and emotionally started to alter the way I thought about the business, which was significantly different from what got us to where we were. By that I mean we had reached the point where we could only take the firm so much further on our own. We found ourselves playing it more safe, more defensive, and that signaled that we had taken things as far as we could. So, we looked for a partner who could take what was great and make it even better.
How long before the actual sale did you begin working on the transition? In retrospect, was that enough time?
David: It was a two-year process. We didn’t have to do it, and we didn’t feel forced to do it. That was a good thing. We did our due diligence and talked to a lot of people, both internally and externally. We also positioned our business for the best possible outcome during that time. In retrospect, two years was perhaps a bit too long because the whole process can be a distraction from your day-to-day responsibilities and not where your time is best spent. I would say for most RIA founders, a year should be ample time to prepare for a sale.
When you first began looking for a partner, what exactly were you looking for? What were the “must haves” among potential partners?
David: First and foremost, we were looking for a culturally like-minded firm. That was non-negotiable. They had to have the same values and be true fiduciaries like us.
And they had to be not just excellent at what they did, they had to make us better. We needed 2+2 to equal 5 or even 7. Not a lot of firms could do that. Sure, there were other firms that offered us more money, but they wouldn’t have made us better. Our goal was to generate value over the long term – for our clients and our employees. We found that with Cresset.
How do you see Cresset’s capabilities as a value-add to your clients?
David: Cresset brings institutional-grade prowess to running a high-functioning business that delivers holistic solutions to clients. Together, we know wealth management and family office servicing very well. That’s a powerful combination of business prowess coupled with tenured industry experience and a proven track record of building a platform.
Why is scale important in the RIA industry today? What did you feel you could better deliver to your clients by joining forces with a firm like Cresset?
David: Scale is enormously important. The alternative to scale is simply throwing bodies at problems. Of course, that’s highly inefficient and ultimately problematic. At the end of the day, we wanted to deliver a world-class solution, unmatched in the marketplace, and do it profitably. Cresset can help us do that.
In your opinion, is now a good time for RIA leaders to consider finding the right partner?
David: The old adage states, “Buying is easy; selling is difficult.” The reality is valuations are higher than they’ve ever been. Could they go higher? Of course. That said, there has never been a better time to sell if you look at where the market is at.
Has anything surprised you about the whole process?
David: Six months in, and it has wildly exceeded my expectations. I am very glad we made the decision to join forces with Cresset. It’s still early days, but I’m incredibly excited about what the future will bring. A peek under the hood and one can see that what we are building is truly differentiated and special.
What final advice do you have for other RIA founders who are considering embarking on the same journey? What’s the first step?
David: Really understand why you are even considering selling. Is it the money? Is it to achieve a better quality of life? Is it succession planning? Really understand your “why.” For me, I realized I wanted a culturally like-minded partner that had the scale and reach to help us accelerate what we had already been doing successfully for decades. It feels great to know we found the right partner.
Cresset specializes in Intelligent Wealth Management™ for CEO Founders, PE Partners, entrepreneurs, and high-net-worth families. Our Family Office goal is to simplify and elevate your life so you have more time to spend on what matters to you most.
Schedule a call with Cresset Co-Founder Avy Stein to explore whether Cresset might be the right partner for your firm.