RIA M&A Surges 29% In 1Q

The first quarter of 2017 was the most active one ever when it came to mergers and acquisitions among registered investment advisors (RIAs). That was the word from David DeVoe, managing director at industry tracker DeVoe & Co., which released its data on RIA mergers this week.

Mergers and acquisitions among registered investment advisors (RIAs) in the first quarter rose 29 percent to a record 44 transactions over the year-ago period. RIA mergers increased 22 percent from the fourth quarter 2016.

Advisors of all sizes are exploring sales and mergers in the first quarter, but sales of advisors with assets under management of between $100 million and $250 million spiked highest, DeVoe said in its quarterly report.

Sellers with assets of $100 million to $250 million comprised 50 percent of RIA sales, the research found.

DeVoe said the spike in the $100 million to $250 million segment is related to the “operational fatigue” advisors face dealing with regulation, technology and “non-core activities.”

The 44 transactions were split 50-50 between established RIAs selling to larger competitors and breakaway advisors joining RIAs, the research found.

Breakaway advisors consist of teams and individuals who left RIAs, wire houses and independent broker/dealers. This trend is fueled by the expiration of forgivable loans issued shortly after the financial crisis to help retain advisors.

Last year, 64 teams and individuals broke away to join RIAs, according to RIA Deal Book, sponsored by Nuveen investments.

Advisors are selling and merging to benefit from economies of scale. Those economies of scale are necessary to survive in a market buffeted by increased regulation and competition from Internet-based advisories that charge less for many services.

Banks, Consolidators the Dominant Buyers

Acquisitions of established RIAs by banks rose sharply as regional banks look to sell banking products to RIA clients, many of whom are high-net-worth individuals, DeVoe said.

Banks, made up only 3 percent of RIA buyers last year, but soared to 16 percent of RIA buyers in the first quarter.

Regional banks such as First Republic, Fifth Third Bank, First Midwest Bancorp, Meridian Bank and Midland States Bancorp were active buyers, DeVoe said.

“Because banks typically pay higher valuations, sustained acquisition activity from this buyer group could put upward pressure on valuations across the industry,” said Francine Miltenberger, managing director at DeVoe & Co.

RIA consolidators also increased their market share of the buyer segment in the first quarter, the research found.

Of the first quarter acquisitions of established RIAs, 57 percent of them came from consolidators compared to 44 percent in 2016.

A consolidator model — Focus, Hightower, Steward Partners, Snowden Lane, Mercer and CAPTRUST, for example — consists of a partnership of independent wealth management firms intent on growing their wealth management business.

The consolidator itself, however, may not necessarily be an RIA.

But because consolidators gather legal and compliance expertise and have access to large sources of capital, they help RIAs within the partnership umbrella buy smaller RIAs and penetrate deeper into the RIA channel.

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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