RIA Consolidation, Advisor Retirement Fuels M&A Activity
Business consolidation is moving forward across registered investment advisor (RIA) firms, as more join or acquire practices to facilitate client demands and keep up with emerging technology as more advisors retire.
As a result of the constant movement, a report from Cerulli Associates expects the merger and acquisition (M&A) market to moved $4 trillion over the next decade.
The number of advisors retiring is increasing daily, with over 26,000 expected to exit the workforce over the next decade, found Cerulli. “Advisor retirements remain the largest addressable market for RIA acquisitions in terms of assets under management,” says Stephen Caruso, associate director at the firm. “On average, these retiring advisors have larger books of business than employee advisors looking to break away.”
A larger number of RIA firms are determining business exit strategies, either as a result of the movement or for new opportunities to expand. Over half (54%) of RIAs in Cerulli’s data are pursuing an acquisition, with hybrid RIAs being the most acquisitive independent channel. Most RIAs also said they were “at least somewhat interested” in acquiring other firms.
Cerulli’s research also touched on serious interest among firms wanting to acquire breakaway advisors, and groups wanting to leave their advisory channel for another opportunity. However, complex exit strategies from captive broker/dealers have deterred these acquisitions from succeeding in the past.
Some firms who have recently broken away from their broker/dealer include Tupelo Wealth Partners, who this month announced their move to Cetera from Commonwealth, and Pattern Wealth, who recently left Thrivent for Ameriprise Financial.
Cerulli expects these acquisitions to only increase in the following months and years, as large organizations look to drive scale by acquiring smaller firms.
“As RIAs continue to consolidate and capture acquisition opportunities, the need to drive value across a pool of affiliated RIAs or practices is critical,” says Caruso. “Firms need to navigate new challenges while maintaining the scalability of the business. With large aggregators looking to drive at-scale solutions, Cerulli expects more firms to use an integration-based approach to the market.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news.