Although 2019 is on pace to be another record breaking year for mergers and acquisitions in the RIA industry, the activity is far lower than it should be, said David DeVoe, managing director of DeVoe & Company, a consulting firm and investment bank focused on wealth management companies.

Financial industry insiders are asking what is driving the continued increase in M&As, but they also should be asking why there isn't more deal-making, DeVoe said. Transactions should be occurring at more than double the amount that is taking place, he said.

According to the Third Quarter 2019 Nuveen/DeVoe RIA Deal Book, released today, M&A activity this year has already surpassed the 100 transactions in 2018.

“With 36 transactions posted during the [third] quarter and 101 transactions year to date, 2019 will be the industry’s sixth successive record year of activity,” the report said. “High valuations, the lure of scale, and a strong stable of thoroughbred acquirers are driving the new pace and pattern.”

“RIAs are looking to grow faster, to have broader capabilities for their clients and to remove their own administrative headaches, which is driving the record breaking number of M&As. However, the number is still less than half of what it should be for an industry with 10,000 firms,” DeVoe said.

One of the things that is holding the number of M&As at the current level is that many advisors do not want to retire and many have no successions plans in place, he said.

“Human beings are living longer—people do not retire at 65 anymore,” he said. “Seventy percent of firms do not have succession plans in place now. This is creating a perfect storm. Eventually, we are going to see a spike where the number of buyers cannot absorb all of the sellers.”

If there is a recession on the horizon, firm valuations will decrease, but not to the extent they dropped in 2008, he added.

“A psychological shift has occurred over the last decade. Ten years ago, advisors were leaving wirehouses and wanted to be independent and be in control,” DeVoe said. “Now more advisors are willing to give up some degree of control to gain the benefits of scale.”

Facilitating that shift is the fact that there is an increasing “proliferation of capital options, which opens up new deal structure options and enables more buyers to execute transactions that were out of reach in the past,” the report said.

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