A growing number of private-equity players are coming into the RIA industry, a development that could increase competitive pressures within the business.

PE-owned firms will begin to engage in more aggressive marketing activities for investors, leading to more competition among RIA firms, said Dan Seivert, chief executive of Echelon Partners, a mergers and acquisitions consultant in Manhattan Beach, Calif.

“This happens in every industry when PE gets involved,” Seivert said Monday in an interview at an Echelon event in Newport Beach, Calif. “It changes the culture” of an industry, turning firms into more robust competitors, he said.

“Private equity needs 20 percent to 30 percent returns annually,” merger consultant Jim Tennies, president of InCap Group in Baltimore, said in an interview.  “If you’re in a mature industry, that’s an awful steep price to pay. … It’s tough to get the growth [PE firms] want from wealth management and asset management firms.”

It may only be a matter of time before the industry experiences more of that competitive pressure. PE-backed firms are having a significant impact on the market, Seivert said. About 40 percent of the RIA deals done in 2015 and 2016 involved PE-backed portfolio companies, according to Echelon Partners research.

Activity by private equity firms has picked up steadily since the financial crisis, Tennies agreed. “We get at least a call a month from private equity firms. … We’re working on a couple projects right now that have a private-equity component,” he said.

Seivert counts 60 PE firms that have financed purchases of advisory firms, including the roll-up operators. “There are five new ones every year,” he said.

PE firms are attracted to the growth prospects of RIA firms, and the steady cash flow, observers said.

Most attractive for these buyers are advisory shops with $3 million a year or more in EBITDA, and usually around $1 billion or more in assets.

“That size the PE guys really like,” Seivert said. The billion-dollar firms are seen as having the size and management depth to survive an adverse event.

While the demand for RIA firms is strong and valuations attractive, advisors need to be cautious in approaching a deal.

Buyers of RIA firms tend to be more sophisticated and practiced than sellers, Seivert said, so sellers end up “leaving tons of money on the table” when they negotiate a deal.

Owners of wealth management firms “don’t understand how value is created when firms come together” and so tend not to get as much as they should, he said.