In only the first month of 2021, a stunning number of RIA M&A transactions were announced, creating a headline frenzy of deal news. We here at Mercer Advisors were a big contributor to these volumes by announcing seven transactions of our own this month, for a total of 43 acquisitions since 2016.
As a result, many in the industry are wondering what is at play here and can these volumes sustain themselves through the rest of 2021 and beyond? From our perspective as an active participant, many of these deals were actually completed in late 2020 to avoid potential negative tax law changes under a different presidential administration.
Regardless, deal pipelines across the industry are bursting at the seams, driven by demographics as founding principals age into their retirement years, and also due to structural industry issues that continue to contribute to advisors needing to make strategic decisions for the future of their careers and their businesses.
What we are finding is that sellers are falling into three distinct camps: 1) growth-minded advisors that want out of the back-office complexities, which are limiting their capacity to expand: 2); older advisors who want to continue in their careers, but also want to shed the back office, compliance and HR issues that are diminishing their job satisfaction; and 3) retiring advisors that want to exit their businesses completely.
While that last cohort has not been a significant factor in the recent past, it has started to increase in volume. However, based on current trends, the operational, regulatory, technology and personnel issues that all RIAs are facing are only going to become larger, more complex and costly to manage. These issues are becoming the number one business challenge that advisors are actively considering as they make their future strategic plans.
Ultimately, what these deals are telling us is that for a majority of the industry, regardless of size or where they are in their lifecycle, most are in need of a well-resourced partner that can provide a better client experience, more services, operational excellence, and a growth engine while creating a career path for their loyal staffs and a more client-focused future for themselves. The business of wealth management is simply becoming too complex, competitive and challenging.
A great quote from one of our new recent partners, Tim Rowland of Rowland Carmichael Advisors, an $850mm AUM RIA in Arizona, exemplifies this, “While we have a strong team and great next generation talent and leadership, we realized that we needed to find a like-minded partner that could not only provide a business continuity plan for us, our clients, and staff, but also help us scale and leverage our operation.”
Many firms are facing similar circumstances as Rowland Carmichael and are at an inflection point as to whether they double down on the investment in their firm to get to that next level, adding even more challenges to address with difficult operational and technology decisions to make, longer work weeks with more anxious late-night hours, as well as significant financial risk; or partnering with a firm that already has scale, a similar culture, a strong brand, and an in-demand service model. "It was the choice of building it or joining it, and we chose to join it," David Carmichael of Rowland Carmichael told us.