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Why Wealth Management M & A Remains Fertile
Here ’ s a look at what ’ s influencing the market today and what to expect going forward .
By Bomy M . Hagopian
AT THE BEGINNING OF 2023 , MANY had doubts about the mergers and acquisition environment in the wealth management industry . The Federal Reserve was in the middle of an aggressive rate-hike campaign . Moreover , the markets were coming off steep losses the previous year , and many had serious questions about the economy ’ s health .
Given those challenges , some observers thought acquisition activity would greatly suffer . But that didn ’ t happen . Indeed , even as the broader M & A market was subdued last year , derailed by rising interest rates , inflation , geopolitical tensions and economic uncertainty , wealth management M & A defied the trends .
According to Fidelity , there were 227 deals last year involving RIA sellers with $ 100 million or more in assets under management . That represented a decline of only 1 % from 2022 . While the annual drop-off was more significant in the data tracked by Berkshire Global Advisors ( which includes only RIA sellers with assets under management of $ 250 million or more ), it was a relatively strong year in terms of deal volume , with the number of transactions easily eclipsing pre-2021 levels .
The market has been propped up by aging advisors seeking a solution to succession challenges ; increasing demand for advisory services from wealthy individuals ; and resilient and growing interest among buyers ( largely backed by private equity ) looking to expand their financial advisor talent pool , client base , service offerings , geographical reach and / or scale . Let ’ s look deeper at these trends .
The M & A market continues to flourish . Part of the reason for this is that financial advisors continue to age , and M & A is an obvious solution to the industry ’ s ongoing succession problem . Second , wealthy individuals are increasingly seeking financial advice , which is creating more demand for broader services ; those successful wealth management businesses capturing this growth have become attractive to buyers .
Third , it ’ s become more expensive for the owners of RIAs to run them , and they need more operational resources , meaning smaller firms see the benefits of merging with their larger peers to reduce costs and free up management ’ s time .
If anything , we expect these dynamics to endure ( or become even starker ) and that the M & A market will accordingly churn along at a robust pace despite the macroeconomic challenges that would otherwise impede it .
Interest among private equity firms shows no signs of slowing down . Private equity has sparked a flurry of wheeling and dealing in the RIA space , and its influence on wealth management M & A activity has perhaps been the defining industry trend of the last five years . In 2019 , 39 % of all RIA transactions targeting firms with $ 100 million or more in AUM involved
28 | FINANCIAL ADVISOR MAGAZINE | JUNE 2024 WWW . FA-MAG . COM