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Hungry Indie RIAs Set to Gorge on M&A

Despite last year’s sluggish market returns, independent RIAs racked up a banner year of deal-making activity. And after a strong start, this year is shaping up to keep pace as maturing RIAs — and the emergence of a new breed of “serial acquirers” — start to proliferate across a growing wealth management field.

At least that’s the view of David DeVoe, a former Schwab M&A expert who now runs his own investment banking and research shop in San Francisco.

He counts 13 deals already cut in the new year. Interestingly, his data shows that most big merger players in the past year had already done at least one deal – many on multiple occasions.

“The independent RIA space is seeing the beginning of a natural evolution in a hyper-fragmented industry,” says DeVoe.

After more than 25 years of rapid growth, he points out that RIAs are going through a period of consolidation. “That’s leading to larger players — namely, multi-billion dollar firms — to make M&A a key part of their growth strategies,” adds DeVoe.

In this group, his analysis counts the likes of Aspiriant, Banyan Partners, Mariner,Buckingham Asset Management and the Colony Group.

He also sees firms like United Capital, Fiduciary Network, HighTower and Washington Wealth Management as following a “consolidation” model where making acquisitions is key to their growth.

New up-and-comers in M&A he’s tracking include Cantor Fitzgerald Wealth Partners and Bronfman E.L. Rothschild.

David DeVoe

According to his estimates, published Thursday, a record 123 different deals were completed in 2015, up 37% on 2014’s previous high water mark.

Besides what he terms as “serial RIA acquirers,” DeVoe credits such volume increases on “the long awaited re-emerging presence of banks” and growing interest by outside private equity firms to move into the industry.

Even as stock markets turn volatile, he tells FA-IQ that industry growth rates will be lifted longer-term by rising demand from baby boomers wanting help managing their portfolios in retirement.

“Generally, when we see choppier markets, we’d expect to see a slowdown in M&A activity,” says DeVoe. “But we’re seeing just the opposite take place now.”

RIA M&A deal drivers

As independent wealth managers continue to gain acceptance among both successful advisors and their clients, “the independent RIA model heads into 2016 with more momentum and opportunities for growth,” DeVoe suggests.

A major driver also figures to be an aging demographic among FAs.

“As more owners turn their attention to the need for succession planning, the roles of larger RIAs as consolidators and merger partners are only going to grow,” says DeVoe.

Steve Foldes, vice chairman of Evensky & Katz/Foldes Financial Wealth Management, added that firms which handle at least $2 billion in AUM are also driving deals because they are trying to expand.

“It’s not a critical component of growth,” says Foldes, whose indie RIA manages more than $1.5 billion. “It’s more about [opportunistic growth].”

Dan Catone, president of Golden State Wealth Management, added that the increasing cost of compliance is another driver as to why RIAs are merging. The Irvine, Calif.-based hybrid RIA in LPL Financial’s network manages about $500 million.

“The RIA industry has exploded in the last 10 years,” says Catone. “Broker dealers started to consolidate 10 years ago, so it’s just natural to see an increase in M&A activity [for RIAs].”

For some industry observers, the up-and-down cycle of the regulatory environment is the main culprit causing advisors to sell their practice, says Sandra Cho, whose solo practice in Encino, Calif., manages about $85 million.

“The intention of the [Department of Labor in setting new rules] is good but it’s a lot of responsibility,” she says, noting RIA firms don’t want to have to deal with the liability that any new regulation would bring.

“Because compliance and regulatory costs are getting prohibitively expensive and the margins are getting thinner and thinner, firms are selling to larger RIAs and combining forces so they can be more efficient as far as costs,” says Cho.

Given that the advisory world is in constant change, Cho says it will be harder for advisors to make money the same way they did previously.

As a result, some older advisors are cashing out completely.

M&A Outlook

DeVoe’s annual review forecasts M&A RIA deals to continue on an upward trend for at least a decade.

The report anticipates structural changes for both the sell side and buy side that will drive continued consolidation as RIA owners retire.

In coming years, advisors who stay in the game may find themselves seeking an exit strategy as new competitors enter the space, or as regulation continues to loom.

DeVoe’s findings suggest 2016 has the possibility of being “another record year” for the industry.



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