Bluespring Wealth Partners, a unit of the wealth management firm Kestra that specializes in advisor acquisitions based in Austin, Texas, experienced a record growth year in 2022 and expects the industry trend of consolidation to continue, Bluespring President David Canter said.
Despite some reports of a slowdown in mergers and acquisitions during the fourth quarter of 2022, Bluespring and Hirtle, Callaghan & Co., a national financial services firm with $20 billion in assets under management based in West Conshohocken, Penn., anticipate mergers and acquisitions to continue at record growth levels, Canter and Jonathan Hirtle, executive chairman of Hirtle Callaghan, said in separate interviews.
Bluespring achieved nine M&A deals last year, most recently adding Goldstein Advisors in Middleton, Wisc., and has more in the pipeline for this year, Canter said. The firm has closed 29 deals since it was launched in 2019.
“M&As are robust industry-wide, with record growth numbers posted each year for the last several years,” Canter said. “This is an indication of a healthy, self-renewing ecosystem.” The number of independent RIAs is now 14,600 nationwide, an increase of 6.7% year-over-year, according to Fidelity research.
Although the latest DeVoe & Company “RIA Deal Book” showed a drastic slowdown in deals for the fourth quarter of 2022, the year still saw a record number of deals. The fourth “quarter started with a whimper. October leaked out a single transaction in three of the four weeks—an 80% drop from a typical weekly clip,” said the DeVoe report. “The pace picked up in November and December, but remained below average. As a result, the fourth quarter was the weakest quarter since the second quarter of 2021.”
Canter and Hirtle said their firms did not experience a slowdown.
“There are two things to that will continue into the future: Firm founders are aging and leaving the industry” and firm owners are able to demand a fair value for their firms now, Canter said. “M&As are the steady heartbeat of the industry. The economic slowdown and rocky markets, as well as increased regulatory requirements, will continue to push smaller firms to consolidate or merge.”
At the same time, colleges and universities are adding financial planning degrees that will help provide the needed talent going forward, he said.
Smaller RIAs also do not want to be left behind in the ability to provide a full suite of services. RIAs want access to platforms and back office services that make operations easier. “We say we are a time machine because we provide advisors with more time to serve their clients,” Canter said. Bluespring buys majority interests in RIA firms.
Hirtle agrees market conditions will push the industry to more mergers and acquisitions. “Over the past ten years, it's been easy for smaller RIAs to succeed because of relatively smooth market conditions; however, this is starting to shift as we enter more challenging markets,” Hirtle said. “Larger organizations typically have more purchasing power and capabilities to serve clients, allowing them to better navigate choppy waters.”
Hirtle said his firm pioneered the concept of an outsourced chief investment officer for the firms it acquires, with the two most recent acquisitions expanding the firm’s presence to Scottsdale, Az., and Minneapolis. Hirtle, Callaghan & Co. serves high-net-worth clients with most having investable assets of $10 million or more.
“The market is actually much more complicated than it has appeared in the last 10 years,” he said. When the good market conditions recede, smaller RIAs will need assistance, he said. An RIA in a medium-sized market that has $2 billion in AUM immediately becomes more credible to foundations and institutional investors when they join a larger firm, Hirtle said.
“The key question is who a firm consolidates with. A lot of acquirers will be ready to sell again in three or five years after making an acquisition. Clients and staff do not want to deal with that kind of disruption a second time, so it is important to join with a stable firm,” Hirtle said.