Expect advisors to greet the merged firm with a healthy dose of skepticism, but if the firm sticks to the roadmap laid out in the press release of letting Colley and his team manage the advisor segment of the business, early odds are that the merger will be a success.
-Joel Bruckenstein
Two Takes On RIA M&A Activity
According to Schwab Advisor Services, 2010 was a record year for mergers and acquisitions among RIAs. According to a report from Pershing Advisor Solutions and FA Insight, last year's number of M&A deals involving RIA firms was the lowest since 2006. What gives?
Schwab tabulated 109 deals involving $156 billion in assets last year. But the "Real Deals 2010" report from Pershing and FA Insight reports 41 deals involving $96 billion in assets. Both camps stand behind their numbers. David DeVoe, managing director of strategic business development for Schwab Advisor Services, says Schwab tracks all sellers who have an RIA affiliated with their firm. Dan Inveen, principal and research director at FA Insight, says his company's deal-tracking entails only those transactions involving independent RIAs. These firms must have at least $100 million in AUM or $500,000 in revenue.
"We track this data on an ongoing basis because M&A activity is really important to our clients," DeVoe says. "We look at the data at least once a month, and we tap into our sales force of 150 people who work with 6,000 advisors in the industry, which might help us see deals that others don't."
Nonetheless, both sides see similar M&A trends in that activity took a hit during the recession but is picking up again for various reasons: Firms have a desire to create scale and reduce fixed costs; they want to create succession plans; they have seen improved valuations as assets and revenue rebound; and RIAs have more time to work on deals.
"Buyers and sellers are less preoccupied with putting out fires," Inveen says. "With markets more stabilized, advisors have more time to think strategically and look into mergers and acquisitions."
Among the findings in the "Real Deals" report is that RIAs themselves have become the chief initiators of deals within the space (a conclusion also reached by Schwab). Those deals involving serial buyers--for whom multiple transactions are central to their business strategy--have dropped from nearly one-third of the total in 2008 to fewer than one-quarter last year.
The report notes that some serial buyers have left the game completely while others, such as Wealth Trust LLC and Boston Private Wealth Management Group, have sold RIA firms they acquired back to the managers. It also says that United Capital has been the most "synergistic" serial buyer in the past two years, while Focus Financial Partners has maintained a presence in the deal-making space.
Both Schwab and Pershing/FA Insight say banks have effectively become non-players in RIA acquisitions. The "Real Deals" report suggests that this might be a short-term trend-that banks in coming years might be motivated to diversify away from interest-related businesses by acquiring wealth managers.
Either way, neither Inveen nor DeVoe expect a pell-mell return to the merger frenzy among RIAs seen before the market crash. FA Insight's findings suggest, says Inveen, that "it will be a while before we see a peak year like 2007, which was a frothy period. I think a lot of deals were done without a lot of study and thought as to their viability, and people went into them with rose-colored glasses."