While advisors may be worrying about inflation and the potential for a market downturn, the advisory industry itself is healthier than ever, especially when it comes to mergers and acquisitions, Schwab executives said during the kickoff of the firm’s Impact Conference Tuesday.
In fact, a significant majority of RIA firms are looking for M&A opportunities to get bigger and grow their capacity, Bernie Clark, head of Schwab Advisor Services said.
“Lots of private equity is attracted to this space. No big surprise that money wants to come to success and this industry has shown that success. Over 60% of RIAs are interested in acquiring another firm right now. [They’re] buyers. It’s hard to find the sellers, but they’re out there. I think some of the buyers are sellers, but what we try to do is bring firms together,” Clark said.
“Numbers like that could mean that half of the people at this Impact conference right now are thinking about doing an acquisition or perhaps being acquired to grow to the future and jump on this wave of acceleration. When you look at the culture of RIAs, it is shifting before our eyes. What a unique time to be part of this space,” he said.
Schwab itself used the acquisition of TD Ameritrade for $24 billion to grow its RIA marketshare. The acquisition yielded a combined total of approximately $6 trillion in client assets, 28 million brokerage accounts and more than 5 million daily average trades and resulted in the firm serving 13,000 registered investment advisors. Tom Bradley, a former Ameritrade executive who is now managing director of Schwab’s Advisor Services, said the integration of TD Ameritrade and its affiliated advisors and custody business into Schwab’s broker-dealer is expected to be completed by October, 2023.
Schwab and other custodians have supported the efforts of consolidators in the RIA industry for much of the last decade. Even though these aggregators have sought to use their size to negotiate better prices from service providers, custodians see efficiency opportunities from servicing a smaller group of large clients.
According to Clark there is nothing ever stagnant in this financial services industry and disruption is good. “Sometimes I reflect on what was a cottage industry some years ago. Boy, It’s not a cottage industry, it’s a profession. And M&A is starting to fuel a huge part of the profession as well,” he added.
He said RIAs provide a better mousetrap for high net worth and ultra high net worth investors who have more complex financial needs. It’s “a mousetrap that is designed to grow. We see that affluent investors want transparency and they want someone with a fiduciary position who puts their interests at the forefront. I’m sure it’s not surprising to anyone here the importance of RIAs in our overall strategy at Schwab."
The leader of the financial services giant said he continues to be impressed by the fact that there is still great opportunity for growth in the RIA world—especially, at Schwab, due to the firm’s significant but still relatively modest share of the market.
“Yeah, we have some challenges we’re always going to face, but we have a very small share of the market. Think it’s a $50 to $55 trillion dollar market and probably $30 to $35 trillion of that is already in an advisory relationship, but only $7 or $8 trillion is with RIAs, so I think we’ve just scratched the surface. We’ve got a whole lot of market share in front of us that we can win together,” Schwab President and CEO Walt Bettinger said.