Banks Seen as Acquiring More RIAs in 2018

Banks are back on the RIA prowl.

Banks bought 13 registered investment advisors (RIA) last year, nearly three times the number of RIAs they bought in 2016. Lower tax rates signed into law last month could encourage banks to buy still more RIAs in 2018, a market analyst said.

Banks, along with some private equity deals, were responsible for about 8 percent of the 153 RIA acquisitions last year, RIA Deal Book reported Monday.

Overall RIA acquisitions rose 6 percent last year from 2016, RIA Deal Book reported.

Signed by President Donald J. Trump last month, the Republican tax-cut bill slashed corporate tax rates from 35 to 21 percent.

In theory, lower taxes will encourage large companies to hire more people and reinvest in the business. But many analysts say companies will use the after-tax cash flow to buy other business and in the case of banks that could mean acquiring RIAs.

“With swollen coffers, banks and large financial services corporation may determine that acquiring RIAs is a good way to deploy this capital,” said David DeVoe, managing partner of DeVoe & Co., which tracks RIA transactions.

The typical RIA is taxed at a maximum marginal rate of 37 percent.

If a low-taxed corporation, such as a bank, buys a high-taxed pass-through business, like an RIA, after-tax cash flows could rise if the bank converts the acquired RIA to bank corporation status, DeVoe wrote in the fourth quarter 2017 installment of the RIA Deal Book.

Combined with the elimination of state and local tax and mortgage interest deductions, the RIA tax treatment has the greatest impact on RIA owners who live in and around the nation’s most expensive housing markets.

Coveting a Channel

Banks covet RIAs because of an RIA’s upper echelon clientele to which a bank can cross-sell banking products.

Last year, First Republic, a bank focused on upscale markets, bolstered its wealth management unit by buying five RIA teams.

New Jersey-based Peapack Gladstone Bank bought two RIAs and six other banks each bought one RIA, according to RIA Deal Book.

Years ago, banks were more active acquirers of RIAs but the financial crisis and banking scandals left them with tarnished reputations.

While overall RIA mergers and acquisitions rose to a record 153 deals last year, transaction volume cooled notably in the second half of the year after the Department of Labor said it would delay the implementation of its fiduciary rule.

In the first quarter, there were 46 RIA transactions, but that dropped to 42 deals in the second quarter and to 32 deals in the third quarter. Deals rebounded to 33 in the fourth quarter, according to RIA Deal Book.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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