f3Logic, LLC. | 2020

11980 Portland Avenue South, Burnsville, MN 55337

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Investment Adviser Representatives offering advisory services through f3Logic, a registered investment adviser. Securities offered through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. f3Logic, LLC and IFG are unaffiliated entities.


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  • Richard DeSalvo

Ulterior Motives

Private Equity Interest in Your Business


Private Equity (PE) firms continuously search for companies in growing industries with healthy, predictable revenues, sticky assets, and earnings that they are not fully invested in already. As such, the Wealth Management industry is very attractive to PE firms as “properties” that will provide a strong return for their investors.


Through investment, PE firms provide scale, leverage, and consolidation of platforms. These are essential tools to create margins and maximize profits. However, in a quest to commoditize this space and flip companies for profit, problems may occur for Wealth Management firms and their clients.


At a glance, you might conclude that as PE firms gain more properties and scale, the price for your platform, custodial services, investments, and clients would decline. Although this seems like a “win-win”, I don’t believe it’s realistic. My view is that “smart money” sees additional spread as greater profit margins and is not interested in passing this revenue along to wealth managers and their clients. Instead, this money is one of the main reasons that PE got involved in the Wealth Management industry in the first place. When considering a partnership with a PE firm, I encourage you to do your due diligence and ask what happens to revenues generated by additional spread.


Furthermore, some PE firms have their own proprietary offering and plan on having you become a de-facto wholesaler of their margin-rich investment products. Revenue sharing and markups on each vendor relationship could be their real motive. This results in more revenue earned by the parent company on a weighted basis than in the spread they receive from your negotiated payout. It’s crucial that you understand whether your employer is in the AUM/service business or the spread business.


Finally, you should be aware that most PE firms invest for 4-7 years and then sell. Before partnering, ask what their exit plan is and how it will affect your business and clients. If they realize that assumed profits are not present, will you and your clients be left in a less advantageous position?


This blog is not meant to bash PE firms. The correct capital infusion can be a significant driver of growth and greatly enhance your business. I simply want to ensure that as you expand your business and deepen relationships with clients, you have confidence that your parent/holding company’s intentions and actions are aligned with yours.


Since my first blog post, I have been touting the importance of educating yourself on key topics that will impact your business and asking the right questions. Any unexpected surprises after joining a firm are your responsibility.


Rich DeSalvo

CEO and Founder

f3Logic, LLC

Where Fiduciary Freedom is First

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Advisory services are offered through f3Logic, LLC, a registered investment advisor.

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