Wealth Manager Deal Activity Sets ‘Transformative’ First Quarter Record

The size and volume of transactions is reshaping the industry, according to one investment bank.

(Illustration by RIA Intel; Bigstock photo)

(Illustration by RIA Intel; Bigstock photo)

The number of mergers and acquisitions involving RIAs reached a new record again in the first quarter, and a level of activity that is reshaping the industry, according to a new report.

There were 76 deals in the first quarter of 2021, seven more than the previous record set in the fourth quarter last year. The Covid-19 pandemic cooled deal activity last spring; there were only 35 deals in the second quarter. But equity markets rebounded, fears of a prolonged downturn impacting wealth managers waned, and buyers and sellers barely missed a beat getting back into the market.

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“As activity levels continue to rise, buyers and sellers have also grown larger and more sophisticated — and M&A is dramatically reshaping the landscape of the wealth management industry,” Echelon Partners, a boutique investment bank that publishes the industry’s most inclusive M&A report, said in its latest report published this week.

In decades past, RIAs usually sold because owners were looking for liquidity, or a transaction was part of a succession plan. Those are still drivers. However, today, independent wealth management firms are a fast-growing, fragmented part of the financial services industry with many trying to grow and scale, some with significant investors behind them. RIA buyers are bigger, better funded, more sophisticated, and attracting larger sellers to the market.

A short list of the most prolific buyers, including CI Financial, Mercer Advisors, Captrust, and others “continue to dominate the buyer market” and account for just under half of all transactions announced in the last three months, according to Echelon.

“We expect another record year for dealmaking, particularly as sellers try to outpace potential tax changes and buyer demand remains high. We also see new buyers entering the market and the competition for high quality targets has intensified,” according to Echelon’s latest report.

The investment bank expects deal activity will continue to accelerate and estimates there will be a record 255 deals this year. There were a record 205 deals in 2020.

There are more than enough buyers and sellers to meet those expectations. The addressable market of RIA acquisitions will be an estimated $2.8 trillion in the coming decade, according to Cerulli Associates, a Boston-based research and consulting firm.

Many business strategies — and conversations in the industry — are focused on the opportunity to garner assets by attracting the so-called breakaway brokers; financial advisors employed by the largest wealth managers, including Bank of America’s Merrill, Morgan Stanley Wealth Management, Wells Fargo Advisors, and UBS Wealth Management. Those advisors leaving for the independent channel represent $529 billion in assets.

But a wave of advisor retirements in the coming years will put into motion much more. Acquisition opportunities stemming from wealth managers exiting the industry will represent an estimated $1.8 trillion in assets over the next decade, according to Cerulli.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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