Schwab Survey: RIA Mergers & Acquisitions up by 28 Percent

The number of completed registered investment advisor (RIA) mergers and acquisitions rose 28 percent to 37 transactions in the first half of the year compared with the first six months of 2014, according to a survey from Schwab Advisors Services.

Transaction value also increased, by 53 percent in the first six months to $49.8 billion in assets under management (AUM) compared with the year-ago period, the survey also found.

Average deal size in the first six months reached $1.3 billion in AUM, the highest average deal value since 2009, when the average transaction size for the entire year was $1.7 billion in AUM, Schwab also reported.

“The success of the RIA industry, buoyed by the impact of a six-year bull market, has helped increase valuations and put RIA firms in a place of competitive strength where they are well-positioned to invest in growth,” said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services, in a news release.

Many RIAs have seen their valuation double over the last five years along with the fortunes of the stock market, according to Schwab Advisor Services’ 2015 Benchmarking Study. The rise in value is causing some RIA owners to proceed with further growth through mergers or acquisitions.

“Some firms are leveraging that strength by choosing growth via merger or acquisition to achieve scale, enhance or fill gaps in capabilities, grow their client base, or to add talent and technology proficiencies,” Beatty said.

GJ King, president of RIA in a Box, a company that offers RIAs compliance and support services, said in an interview with InsuranceNewsNet that he expects more mergers “for years to come.” That doesn’t mean the industry is shrinking, but mergers are happening because it remains dynamic, he added.

The number of new RIAs launched outpaces RIAs merged or acquired out of existence, or simply closed because the founders have retired, he said.

RIA firms grew by approximately 3.1 percent, or 997 firms, to 32,736 RIAs in the 12-month period ending May, 31, 2015. Those numbers were compared with the preceding 12-month period, according to the data released by Meridian-IQ in July.

Baby boomers, who are living longer than preceding generations, realize they can hang on for much longer than previous RIA owners might have done, King said. So there’s not the same urgency to get out of the business.

“Boomers realize they can extend things,” he said.

With the advisor population aging, it makes sense that RIAs would merge and consolidate, but people who run RIAs are also very independent and don’t necessarily want to give up the businesses they’ve spent their lives building if they don’t have to.

“RIAs didn’t go into business to sell the business but to stay in the business,” King said. “They love the freedom and flexibility (of an RIA).”

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].