RIAs are continuing a three-year streak of record merger and acquisition activity.
According to the DeVoe & Company RIA Deal Book, published on Thursday, RIAs conducted 142 transactions in 2016, an all-time high.
“RIA M&A activity continued at a record pace in 2016,” said David DeVoe, managing partner at DeVoe & Company. “Advisors are selling, buying and merging primarily for strategic reasons, seeking to improve their offerings to clients, expand their services and capture the benefits of scale.”
DeVoe said that this is the third successive record year, and an 8 percent increase above the 2015 record of 132 transactions.
RIAs have become the most dominant buyers of other RIAs, acquiring nearly 50 percent of the established RIAs sold.
RIAs aren’t just breaking records, they’re also sustaining their M&A activity. There were 35 transactions in the fourth quarter of 2016, making it the ninth successive quarter of 30 or more transactions. DeVoe believes that this may represent a “new normal” of RIA M&A activity.
Breakaways from wirehouses, IBDs and other RIAs also continued to surge in 2016, as nearly 65 teams moved to the RIA channel, almost triple the number of breakaways recorded in 2013. DeVoe credits this surge to the expiration of forgivable loans offered by wirehouses to retain advisors during the financial crisis.
All told, a total of 78 “established” RIAs sold in 2016, a slight uptick from 76 sales in 2015. Both large RIAs with assets between $1 billion and $5 billion and small RIAs managing between $100 million and $500 million increased their M&A activity in 2016, but for different reasons.
According to DeVoe, large firms are being bought by acquirers interested in adding billions of AUM through a single transaction, while smaller RIAs are being purchased by affiliates of consolidators. As a result, sub-acquisitions now comprise 22 percent of all established RIA transactions.
M&A activity cooled last year among “mega” RIAs with more than $5 billion AUM and mid-sized RIAs with between $500 million and $1 billion in AUM. Nevertheless, the average AUM for a selling RIA rose to $1.07 billion in 2016 from $926 million in 2015.
While sub-acquisitions play a significant role in M&A activity, consolidators are taking a smaller position as buyers of firms. In 2016, consolidators were responsible for 24 percent of the total acquisitions, a sharp decline from their 41 percent position in 2015, noted DeVoe. Banks were responsible for 6 percent of the established RIA acquisitions in 2016, in line with their activity in recent years.