RIA merger and acquisition activity during the first quarter either declined or increased, depending on the criteria used to measure the firm movement, according to two financial organizations, But both concluded the industry movement is still healthy.

DeVoe & Company reported today that activity declined and, for the first time in nearly a decade, the year opened with a weaker first quarter than the previous year’s first quarter.

At the same time, Fidelity reported an increase in first quarter activity.

DeVoe based its findings on traditional RIAs with $100 million or more in AUM. It does not include SEC-registered hedge funds, independent broker dealers, mutual fund companies and other companies that so not operate as traditional RIAs.

Fidelity based its analysis of activity on more types of financial firms, including RIAs, breakaway advisors and advisory teams who are leaving a financial institution to join a wealth management RIA, and independent broker-dealers.

This year “started with a whimper,” according to DeVoe. There were 63 transactions posted in the period, according to DeVoe calculations, which was 7% lower than the 68 transactions in the first quarter of 2022. The slowdown extended the 20% decline of Q4 2022, and is the first six-month downturn that the industry has experienced since 2018, DeVoe said.

Smaller RIAs, with between $100 million in AUM to $500 million in AUM, dominated the sellers side of the equation during the first quarter, while the participation of mid-size firms, with $5001 million to $1 billion in AUM “cratered,” DeVoe said.

“The slowdown was driven by a confluence of factors, some of which have historically directly impacted M&A, and others that likely fatigued sellers,” DeVoe & Company said. “A declining stock market and rising interest rates conspired to compress revenues and increase acquisition costs. Advisors were actively evaluating the implications of inflation, a stalled economy, human capital challenges and even a banking crisis.”

Despite the current sow down, activity remains relatively high. Consolidators, defined as companies that are active acquirers, continued to be the dominant the M&A space.

Nearly 45% of advisors expect M&A to increase in 2023, while 25% expect a decline, according to the DeVoe & Company. “So far, it seems that they may both be right — it just depends on the day, week or month” being measured. “There is no safe bet on whether 2023 will be another record year.

But, the pipelines for most of the major acquirers remain strong, and, looking beyond 2023, DeVoe said it is more confident that M&A will trend upward. The structural underpinnings of the industry and the long-term trends point toward increasing activity over the long run.

Using Fidelity’s broader definition of firms involved in mergers and acquisitions, as reported in the Q1 2023 Wealth Management M&A Transaction Report, there were 67 M&A transactions in the first quarter, an 18% increase over the first quarter of 2022. January and February saw slower movement than the same months in 2022, but March made up the difference, Fidelity said.

Despite continued market volatility, the fundamentals driving M&A activity were still there, according to Laura Delaney, Fidelity’s vice president of practice management and consulting.

“Larger deals of $1 billion and up made their appearance in March, comprising 33% of March’s activity and 87% of March’s AUM,” she said. “Overall, the first quarter stuck a better than expected landing with a mere 1% decrease in total AUM versus the first quarter of 2022. Companies reported pausing to evaluate M&A budgets and to properly integrate prior year transactions. While overall valuations may be ticking down, the environment continues to reward high value firms with high, but plateauing, multiples.”