Mergers and acquisitions involving RIA firms are down so far this year, but pent-up demand could lead to an increase in deals next year, according to James Poer, CEO of Kestra Financial, an independent advisory platform in Austin, Tex.
Financial insiders had predicted 2017 would be another record-breaking year for RIA mergers and acquisitions, but a decrease in deals in the third quarter is making that prediction questionable.
However, Poer says he thinks the dealmakers have just put actions on hold for now, not nixed them completely.
“Mergers and acquisitions ebb and flow. Going into 2017 we thought there would be more than it is turning out to be,” Poer says. “But the uncertainty around the DOL fiduciary rule may be delaying some deals. Plus the market is doing so well that people are in no hurry to deal.”
Kestra is a strategic acquirer that has completed numerous deals since it broke off from NFP Corp. a year and a half ago. The deals include the acquisition of $2.4 billion H. Beck Inc. in August.
The third quarter of 2017 has been the slowest in the last three years, according to DeVoe & Company, a financial industry investment bank and consulting firm. “The unexpected decrease raises the question of whether 2017 will be a record year of activity, which only a few months ago seemed like a fait accompli,” DeVoe said.
The industry has experienced 114 transactions as of the end of the third quarter versus 108 for the same period in 2016, says DeVoe, but if the slowdown is sustained in the final quarter, the year will fall short of the 144 deals last year and 133 in 2015. The third quarter of 2017 saw 29 deals compared to 36 for the third quarter of 2016 and 33 for 2015.
There are contradictory pressures on advisors to break from wirehouses in order to set up independent firms, or fragmentation, Poer says. That creates competition among advisors, which is good for the clients. But at the same time, the financial industry is a game of scale, which makes advisors want to consolidate, he says.
“To create the right client experience, an advisor has to have the services to support the clients,” he says.
“I think there will be an uptick in deals next year. The SEC is picking up the mantle on the fiduciary rule, which will provide more clarity, and costs for advisors are continuing to increase,” he adds.