Another firm that grew in clients and assets was RSM McGladrey Inc. in Minneapolis, which, like Ronald Blue, also reaped the fruit of new clients, in large part because of its connection with a large accounting arm. Many of these new clients were leaving the wirehouse channel, says Robert Eichten, director of financial planning and practice development at the firm.
"Many of the clients that we did acquire had prior advisory relationships, many of which were with wirehouse brokers," says Eichten. "The reason why we acquired them more than anything is because of the other accounting services we provide-the tax services, consulting services and things like that. And [the clients] got caught in a transaction or something. Many times it had something to do with taxes. Our wealth management is joined at the hip with the tax people and so we're able to be side-by-side, complementing and supplementing each other."
Companies such as United Capital and GenSpring, on the other hand, have continued to grow by aggressive consolidation. United Capital, a strategic buyer whose raison d'etre is to aggressively snatch up new firms for its network in hopes of an eventual big payday, signed definitive agreements for 12 deals in 2008. Some of the largest were Hotchkiss Associates, an RIA firm in Chicago; Trevethan Capital Partners, a lift-out from Oppenheimer & Co. in San Francisco; and The Hunter Group, an RIA in La Jolla, Calif.
GenSpring, meanwhile, picked up two firms early last year: Inlign Wealth Management in Phoenix with nearly $2 billion in assets under advisement and TBK Family Office in Miami with more than $1.5 billion in assets. (GenSpring has already picked up two more firms since 2009 began.) Though the market downturn buffeted those new assets later, the company still saw a net $2.4 billion in asset growth and 200 new client relationships. The firm caters to high-net-worth individuals, and the average AUM per client was about $20 million, according to the survey. One reason for the growth outside of the acquisitions, says senior partner John Elmes, is that many of the firm's existing clients have moved assets they'd parked with other companies in the past.
"One of the things we saw last year," says Elmes, "was many families consolidated their assets with us. Let's say they had a liquidity event and had $20 million with us and $20 million with Goldman Sachs. We did see a lot of consolidation where people put assets with us that had been split up. Having one advisor who was sitting on their side of the table made more sense. As the tide goes out, the families really see who is helping them and that's a huge boost for any firm, not just GenSpring."
The devastation in the market and the difficulty some firms have controlling costs will likely make some of them potential acquisition or merger targets. But bigger firms are still more likely to merge. In the last three years, 35.56% of those firms with a billion or more in assets under management have seen merger activity, while only 24.07% of those firms with $500 million to a billion in assets had pursued such transactions. The number diminishes as the categories are winnowed down.
Savant, which reported assets of $1.19 billion for 2008, is considering acquisition opportunities for the first time, Brodeski says. He even says that smaller RIAs are coming to his large firm looking to be squired.
"Seems like if you go back two years ago, it was really more of a seller's market," he says. "There were very few practices for sale and in fact the few that were for sale were obscenely priced. All of a sudden it seems like, while there's not been a lot of transaction activity, it appears as if there's a lot more interest for RIAs to sell at this point because they're not making a lot of money and they may even be losing money."
GenSpring's Elmes agrees that many multifamily offices are feeling constrained by the market downturn, and as assets go down, they can benefit more from merging or being bought by a larger firm like his. "Multifamily offices today-their assets are declining but their expenses are staying the same unless they reduce their staff," Elmes says. "A lot of them had not. That means expenses as a percentage of assets have gone up and that helps us [pitch GenSpring as a buyer]. Our advantage is that we've created a resource center that allows them to create scale."
Mark Tibergien, CEO of Pershing Advisor Solutions, says merger activity among RIAs slowed in 2008. Though the firm did its last report in August, he says the M&A market continued to be sluggish through the first two months of 2009. Nobody wanted to buy beach property in a hurricane, he says.