RIA Deals Inch Ahead of Last Year in First Half

Mergers involving Securities and Exchange Commission-registered investment advisors in the first half of 2016 are on par with last year as more regulation and compliance procedures encourage larger RIAs to buy smaller competitors.

There were 71 RIA transactions in the first six months, according to the Nuveen-DeVoe & Co. RIA Deal Book. There were a record 130 RIA transactions in 2015.

From the buyer perspective, RIA mergers and acquisitions are being driven by scale as large established RIAs buy smaller established competitors, said David DeVoe, managing partner at DeVoe & Co.

Multibillion-dollar RIAs are buying billion-dollar RIAs and the average volume of assets under management of established RIA sellers has crested the $1 billion mark for the first time, the Deal Book data shows.

Monday RIA Merger Underscores Trend

That very trend was underscored by a Monday merger. Tiedemann Wealth Management, a New York-based wealth advisor with $9 billion in client assets, merged with Presidio Capital Advisors, a San Francisco wealth advisor and subsidiary of The Presidio Group with approximately $4 billion in assets.

Terms of the transaction were not disclosed.

The transaction marks the 13th “large transaction,” of between $1 billion and $5 billion in assets under management so far this year, DeVoe said.

Sales of RIAs in the $1-to-5 billion asset segment are running about 50 percent higher than the historical average for that segment and account for 17 percent of all year-to-date transactions, he added.

“Size is becoming more important in this industry as regulation and technology options become increasingly complex,” DeVoe said in an interview.

Banks and private equity companies have also become more aggressive RIA buyers, he said. For a bank to buy an RIA in a deal that makes economic sense and “move the needle,” the acquisition has to be in the range of $1 billion or more.

“Scale matters in this industry,” DeVoe said. “The margins of a multibillion-dollar firm can be very attractive.”

Seller’s Profile Changing Too

The latest Deal Book data also show that the profile of the seller is changing.

The “breakaway broker,” an RIA that has left the fold of a wirehouse and sold itself to an established RIA or an RIA aggregator, is less active this year. The trend is RIAs already established in the market selling themselves to larger RIAs, DeVoe said.

Last year’s breakaway broker numbers were driven by the expiration of seven-year loans made by wirehouses in 2008 and 2009 to retain their advisors.

When the loans expired, RIAs broke away and the exodus showed up in last year’s numbers, but this year there are fewer RIAs breaking away, DeVoe said.

Of the 71 transactions in the first half of the year, 43, or 61 percent, involved established RIAs compared to 57 percent last year, according to the Deal Book data.

Small and midsize RIAs are “exploring acquisition because of power of scale. You can see compliance being a pain point,” DeVoe said.

A $100 million RIA doesn’t have much in terms of resources to allocate to its affiliated roboadvisor channel or to complex compliance requirements, for example.

But a $200 million RIA that sells itself to a $5 billion-dollar RIA is likely to benefit from financial resources and expertise offered by the larger shop, DeVoe explained.

RIAs, also known as fee-based financial advisors, along with dually-registered advisors, controlled $3.6 trillion in assets in 2014, according to Tiburon Strategic Advisors, a consulting company.

In 2014, there were about 12,000 SEC-registered, fee-based RIAs in the U.S., an increase of 75 percent since 2001, Tiburon found.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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