Mergers and acquisitions involving registered investment advisors started off strong in the first two months of the year with 20 transactions totaling $28.7 billion in client assets, but activity slowed to a crawl as the pandemic took hold in March, said Fidelity Institutional.
Assets under management for the first two months exceeded totals for all of the prior year's first quarter, according to the Fidelity Wealth Management M&A Transaction Report. Another three transactions in March boosted AUM to $29.9 billion, a 35% increase over the first quarter of 2019. But the number of transactions versus the same period last year were down by 26%.
April, too, got off to a slow start. The report said there were three RIA transactions representing $1.4 billion in client assets and one broker-dealer acquisition by LPL Financial representing $1.5 billion. But March and April combined had the lowest RIA AUM total ($2.6 billion) for two consecutive months since Fidelity began tracking this space in 2016.
RIA deals are down 38% and AUM has dipped 33% year to date compared to the same period in 2019, the report said. As for IBDs, client assets are down from $391 billion and six deals to $1.5 billion and one deal.
The 2020 deal sizes in the first quarter were high, with each representing more than $1 billion in client assets, the report noted. Those acquisitions included Cerity Partners, Fiduciary Trust, CAPTRUST and Wealth Enhancement Group.
Fiduciary Trust in January made the largest deal when it acquired Lincoln, Mass.-based Athena Capital for $5.8 billion. And three firms—CAPTRUST Financial Advisors, Cerity Partners and Mercer Advisors—each had two deals.
Fidelity said activity was largely driven by high valuations, competitive investment capital and a desire to scale technology and operating platforms, along with a need to develop specialized client service capabilities.
There were no broker-dealer transactions during the quarter, after a record year of activity in 2019, the report said. But it noted that Blucora, the parent company of Avantax Wealth Management and a firm that has been active in the IBD space, completed an acquisition of HK Financial Services, a CPA-focused RIA with $4.4 billion in client assets. Transactions like these, the report said, reveal how consolidation is contributing to emerging business models that span both independent wealth channels.
Fidelity said while some firms have taken a pause to assess the changed market environment, “the fundamental forces driving M&A can be expected to return in the months ahead, and firms can remain competitive by evaluating their position in the market and energizing around the unique value they can offer.”