Record High RIA Acquisitions Explained
The landscape of Registered Investment Advisor (RIA) mergers and acquisitions (M&A) is experiencing a surge, with a Fidelity Investments report indicating record-high activity in this area. In 2015, there were 89 RIA M&A deals, a number that skyrocketed to 233 last year. Alongside this notable increase, the value of acquired assets rose from $130 billion to nearly $670 billion over the past decade, despite fluctuations in interest rates during this period.
The driving force behind this upward trend is the aging demographic of advisory owners seeking exit strategies that enable them to retire comfortably. This demographic shift has intersected with a substantial pool of acquirers eager to make strategic purchases, resulting in what Fidelity describes as a “perfect storm” for RIA M&A.
What sets this current wave of RIA M&A apart is the shift in buyer behavior and target firms. Acquirers are now taking a more proactive approach by establishing growth plans for the RIAs they acquire and merge. Additionally, firms with client assets exceeding $1 billion are increasingly becoming acquisition targets, attracting a fresh wave of buyers looking to expand their portfolios.
Leading the charge in this dynamic landscape are serial acquirers such as Focus Financial, which finalized 21 RIA M&A deals through its affiliates last year. Other key players like Wealth Enhancement Group and Waverly Advisors have also been active in acquiring RIA firms, with 12 and 10 deals completed, respectively.
The heightened appetite for RIA M&A is evident in the robust activity seen in October, considered the strongest month for deals by Fidelity. The typical deal closure timeline of seven to nine months means that targets identified at the beginning of the year often finalize transactions towards the year’s end. Moreover, the uncertainty surrounding potential changes to the tax treatment of unrealized capital gains during the recent presidential campaign may have spurred companies to expedite their deal closures before year-end.
With the likelihood of major tax changes diminishing and interest rates remaining favorable, the momentum in RIA M&A shows no signs of abating. Both small and large RIAs are advised to assess their readiness to participate in this market trend. To maximize their opportunities, firms should focus on enhancing transparency, minimizing revenue risks, and developing robust plans to cultivate and expand revenue streams by tapping into new and younger client bases.
