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Wealth Management’s $2.8 Trillion Up for Grabs

The ‘growth-challenged’ RIAs, breakaway brokers, and retirements redistributing assets.

As wealth managers fail to attract enough new clients, leave the so-called wirehouse brokerages, and retire in waves, an enormous sum of assets will be in play, according to a new report.

The number of mergers and acquisitions involving wealth managers is already at an all-time high. There were at least 203 deals last year, according to Echelon Partners, a boutique investment bank that publishes the industry’s most inclusive M&A report.

But deal volume is expected to continue to climb as the addressable market for RIA acquisitions surges to an estimated $2.8 trillion in the next five to 10 years, according to Cerulli Associates, a Boston-based research and consulting firm.

The total number of RIAs also continues to rise but three trends in wealth management will drive a redistribution of assets in the coming years.

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More wealth managers struggling to wear two hats — advisor and business owner — will ultimately choose to focus on serving their clients and release the responsibilities of running a firm. Independent advisors spend an average of 41% of their time on investment management and administrative responsibilities (time they aren’t spending prospecting or improving their practice). Several prolific RIA buyers have emerged to help that group for a reason: The addressable market of those acquisitions will be an estimated $461 billion in the coming decade, according to Cerulli.

“While independence presents the ideal option for advisors who want to be unencumbered by the rules of broker/dealers or limited product menus, many advisors find themselves underprepared to run an RIA and have trouble achieving scale,” according to the research firm’s latest report.

There is even more opportunity in 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. Many of those financial advisors aren’t interested in hanging their own shingle and will choose to sell their practice to an existing one. This group has been trickling out of the wirehouses for the last 10 years and, although it has not had a material impact on some of those businesses, they represent a lot of assets in aggregate: $529 billion. 

“Growth-challenged” RIAs and breakaway brokers are often wealth management trends mentioned alongside the aging advisor workforce and the coming wave of professionals exiting the industry. But the latter will be far more significant, at least in terms of assets in need of a home. There are acquisition opportunities that will represent an estimated $1.8 trillion in assets tied to advisor retirements in the coming decade, according to Cerulli.

“Succession planning remains an ongoing concern across the industry as more founders and partners approach retirement. Independent advisors often lack the tools and resources to readily implement a succession plan and transition their business to the next generation. However, more firms are actively engaging the next generation of advisors in their firms, assessing their interest and readiness to take on a larger role, with the eventual goal of passing the reins to them,” the latest report says.

There are already signs this is happening. Larger RIAs are exploring sales, a sign that owners who are holding out are coming to market, according to the leader of wealth management acquisition strategy at Captrust, a Raleigh, N.C.-based company that manages more $50 billion and advises on $409 billion. 

Data also supports the retirement wave’s amplitude is building. In 2020, the average assets under management transferred in a deal was $1.8 billion, up 24% from 2019’s average of $1.5 billion and the highest ever, according to Echelon.

Consolidation is happening elsewhere in wealth management, too. The number of broker-dealers continued a years-long slide as they merged and acquired each other in the face of rising costs and competition. It’s another trend Cerulli expects to continue in the future.

“Greater scale enables firms to increase these relatively fixed investments and returns on those investments can increase significantly when they support a larger number of advisors and assets under management (AUM),” Michael Rose, an associate director at Cerulli, wrote in the report.

“Additionally, investments made in these areas can significantly increase the appeal of a B/D firm to prospective advisors, better positioning firms to increase market share.” 

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

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