Consolidation in the 401k space has people asking questions.
Do advisors step aside for the next generation? If so, what does succession look like? Should the practice be sold and if so to whom? What are the multiples, and what will life be like after the transaction for advisors, the firm’s employees and its clients?
Industry veteran Dick Darian, CEO of The Wise Rhino Group, an M&A advisory firm on both the buy and sell side, set out to provide answers at the GRPAA Finnovation Conference in San Diego on Friday morning.
“All industries that can consolidate will,” Darian noted at the outset of a panel discussion titled Succession Planning: The Future of Your Business. “And financial services is consolidating in every corner of the space.”
Recordkeepers, broker-dealers and the national consulting firms are currently in the late stage of consolidation. Benefits and P/C businesses are also in late-stage consolidation with wealth management and RIAs not far behind.
“Yet consolidation of the retirement advisory space is just beginning,” Darian added.
| Firm Type | # Firms | # Advisors | AUA (b)/% | Example | |
| National Consulting Firms | 7 | N/A | 3,645/49% | Mercer, AON | |
| Regional/Boutique Consulting Firms | 43 | N/A | 525/7% | PEI, Curcio Webb | |
| Aggregators (RIA, Benefit, Platforms) | 15 | 2,560 | 1,273/17% | CAPTRUST, Hub Int | |
| Regional Elite (> $3m rev) | 75 | 1,772 | 352/5% | Compass, RBG | |
| Elite (> $750k rev) | 575 | 6,256 | 743/10% | Lakeside, Clearview | |
| Non-Elite | 1,550 | 2,725 | 529/7% | N/A | |
| Wire, Bank, Insurance BD | 3,892 | 8,738 | 357/5% | N/A | |
| Total | 6,162 | 22,051 | 7,424 | ||
He then listed nine advisor challenges currently seen:
1. Fee marginalization
All areas of financial services are impacted, which must to the same or more for less as services are increasingly commoditized.
2. The fight to ‘own’ the participant
It’s a requirement in order to realize revenue, but competition exists from recordkeepers who have overlapping value propositions.
3. Health, wealth and retirement
There is a convergence of the three and more of a holistic focus on the client. Services must, therefore, be expanded and diversified to retain margins.
4. Consolidation
As mentioned, recordkeepers, broker-dealers, and investment consultants are in the seventh inning, wealth and retirement advisors are in the third inning.
5. Bridge to wealth
In-plan advice capabilities are increasingly critical, and a technology gap exists.
6. Human capital
The average age of advisors is rapidly increasing, now in the mid-50s.
7. Competitors with scale
They’re increasing in number, professionally managed and well-capitalized.
8. Existential threats
Legislation and regulation, other DCIO and DC players and completely different industry entrants like Amazon and Google are lurking.
9. Timing of the current market
The level of multiples currently and buyer to seller ratios are high, but for how long?
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
