As financial and strategic acquirers scale back, the RIA consolidation game is morphing into more of an intra-industry affair. Firms increasingly are looking among themselves to merge or acquire and grow their businesses to create both scale that could enhance value and the internal dynamics necessary for succession.

Still, the vast majority of advisory firms lack a sufficient amount of the single most important ingredient to initiate sizable acquisitions-capital. As private firms structured as S corporations or LLCs, RIAs see the bulk of their profits passed through to principals, who are then required to pay taxes, often at the top marginal tax rates.

Data from Schwab Advisor Services reveals the extent to which RIA firms, not consolidators or other acquirers, are now dominating the M&A space. In the first three quarters of 2011, individual RIA firms accounted for 45% of all transactions, up from the 30% to 33% range in 2007 and 2008. Between 2010 and the first three quarters of 2011, consolidators' share of total deals fell from 42% to 30%. While recovering regional banks staged a modest comeback from about 2% to 14% of all deals during the period, they are a much less salient factor than they were in the middle of the last decade.

In terms of total volume, it would appear that merger activity is stalling somewhat. In 2010, Schwab's database tracked 70 transactions valued collectively at $62.7 billion in assets under management. For the first three quarters of 2011, it counted 44 deals representing $37.7 billion worth of assets.

This scarcity of external capital creates a problem if an advisory business hopes to cash out part of its position in the new business. Instead, the advisor may have to simply swap equity. As with most small businesses in the current lending environment, financing sources may or may not be available. And even when they are, the cost of borrowing is frequently unattractive.

Furthermore, with the terms and covenants associated with small business lending growing stricter and tighter, it's natural that RIAs are scouring the landscape to find friendly sources of money. So it should come as little surprise that the leading custodians in the RIA space are offering acquisition financing to firms that do business with them.

But there are many types of transactions. When Kochis Fitz and First Quintile got together in 2008 to form Aspiriant, it was "a true merger," says CEO Rob Francais. With the goal of creating a coast-to-coast advisory firm, Aspiriant executives went to work establishing the organization they wanted to leverage, creating the client service offerings, compensation structures and governance model that could take the new entity to the next level.

Two years later, Aspiriant bought Deloitte Investment Advisors from Deloitte Tax in July 2010. Deloitte was forced to sell its advisory arm largely for regulatory reasons. Though Francais refuses to disclose the terms of the transaction, reports are that Deloitte originally asked for $25 million to $30 million, but that Aspiriant emerged as the winning bidder for $7 million.

For a firm looking for a national footprint, the deal made strategic sense. Some top principals at Aspiriant were Deloitte alumni-Francais himself had been a tax partner at the Big Four firm-so there was a cultural fit. Moreover, the Deloitte deal brought in about 40 new people, more than 30 of whom were client-facing. Deloitte had offices in six different Midwestern and Northeastern cities and Aspiriant had clients in 42 states, so the transaction made it easier to serve clients far away from the firm's San Francisco and Los Angeles offices.

The Deloitte deal was held out as an acquisition, but Francais says that in the way it was structured Aspiriant carved out about half the deal as a management buyout, permitting 12 former Deloitte advisors to become Aspiriant principals.