There were 132 mergers and acquisitions involving RIAs in 2019, a record total for a sixth consecutive year. A yearly record “has essentially become the expectation” but in 2020, one observer says northern neighbors could help achieve that like never before.
Canadian companies have always had some level of interest in owning U.S. wealth managers but that interest is growing, according to a report released Wednesday by DeVoe & Company, a consulting firm and investment bank.
“While there has historically been interest from the North in the U.S. market, activity spiked in the last six months. Several Canadian companies have indicated their interest in the U.S. wealth management market in both word and deed,” the report states.
Last fall, Canadian Imperial Bank of Commerce (CIBC) acquired Lowenhaupt Global Advisors, a St. Louis-based RIA that catered to the ultra-wealthy families and managed $1.8 billion, and folded it into its CIBC Private Wealth unit. It wasn’t the bank’s first acquisition of a U.S. wealth manager. It previously acquired Atlantic Trust, which managed over $8 billion at the time of the sale, and Geneva Advisors, which managed $8.6 billion when it sold in 2017.
CI Financial, a Toronto-based asset and wealth management company that reported overseeing a total of $181.9 billion, acquired an RIA in November and December, respectively. It became a majority stakeholder in both One Capital, a Westlake Village, Calif.-based RIA that managed $1.6 billion, and Surevest Wealth Management, a Phoenix-based RIA managing $370 million.
"The U.S. has the world's largest and most accessible wealth management market and RIAs are its fastest-growing segment. As a well-capitalized company with extensive experience in wealth management and a unique value proposition relative to other firms, CI is in a strong position to acquire leading RIAs and foster their continued expansion," Kurt MacAlpine, CEO of CI Financial, said in a December statement about Surevest.
Bank of Nova Scotia is eager to enter the mix, too. The head of the company’s wealth unit told Bloomberg in November he wants to diversify its revenue by targeting affluent customers and potentially acquiring wealth managers in the U.S.
David DeVoe, the managing director and founder of the namesake investment bank and consulting firm, said he has also been approached by non-U.S. companies interested in RIAs, including some based in Canada. His company, however, is not currently working with any non-U.S. buyers.
“The interest in the U.S. independent advisory space from foreign companies further underscores the power of the RIA model. We expect to see the Canadian firms continue to expand into the U.S. market,” the report says.
Last year’s RIA deals involving foreign buyers represented a small percentage of all transactions. It could inch up, considering the stated intentions from Bank of Nova Scotia and reportedly others.
Not everyone sees the future unfolding any differently than it has in the past, in terms of non-U.S. buyers.
“We received calls from firms in Australia, Europe, and Canada at the same frequency in 2019 as we have for the past 15 years,” Dan Seivert, CEO and founder of Echelon Partners, an investment bank and consulting firm focused on wealth and investment managers, told RIA Intel.
Echelon has tallied about two or three deals from non-U.S. buyers annually for years and doesn’t expect any meaningful uptick in 2020. Three deals would represent a tiny fraction of all 203 transactions Echelon tallied in its own M&A report for 2019.
Non-U.S. buyers face challenges that dampen enthusiasm for even the growing RIA industry. Foreign buyers face the obvious challenges of distance and an additional regulatory regime. They also must contend with an entire new set of ancillary services, such as portfolio accounting, reporting, and reconciliation.
“These companies have operating requirements and the sort of plumbing that is based off of technology firms that are domiciled in those respective countries. There are no synergies as a result,” said Seivert.