After a record-breaking first quarter for the number of mergers and acquisitions in the RIA space, the number plunged during the second quarter, according to a report released Tuesday by DeVoe & Company.

The Nuveen/DeVoe RIA Deal Book reported that mergers and acquisitions dropped from 49 in the first quarter to 32, one of the lowest levels seen in the last three and a half years.

The drop was driven by the reduction in movement of established RIA practices, as opposed to breakaway advisors and teams. The number of deals among established firms plunged from 32 in the first quarter to 14 in the second. Breakaways joining other firms were steady, going from 17 in the first quarter to 18 in the second.

“We are in a unique period of extreme turbulence,” said David DeVoe, managing director at DeVoe & Company, a consulting firm based in San Francisco. “Quarterly M&A transaction volume has careened to recent record lows, shot up to an all-time high, only to drop back into the basement again. However, when you step back from the detail of the volatility, it is clear that a softening has occurred over the last twelve months.”

The size of the deals dramatically increased for established RIAs. The average AUM of sellers was $1.144 billion for the second quarter, compared to $905 million for the first quarter. The study included firms with more than $100 million AUM but less than $5 billion.

“Consolidators like Mercer, United Capital and HighTower are contributing to the trend toward larger sellers, as they target and close bigger deals,” the study said. “Recent comments from the heads of these organizations indicate that this momentum will likely continue.”

Part of the merger and acquisition movement is being driven by the aging population of firm owners and their lack of succession planning, the study said.
Sixty percent of the 123 advisors who were polled for the study expect to acquire an RIA within the next two years.

“This is great news for the industry, as DeVoe & Company believes the industry needs a larger pool of acquirers to absorb RIA firms whose owners haven’t planned properly for their retirement,” the study says.

“For sellers, RIA valuations are high, the number of buyer candidates is broad and there are clear benefits of scale. For buyers, the demographics are attractive, the lack of succession planning is beneficial, and the genuine openness to talk to buyers is high. So, despite a recent slowdown in RIA M&A activity, there is a wide breadth of data points that indicate strong M&A activity will likely continue well into the future,” according to the deal book.