The five most active RIA buyers in 2023 were Wealth Enhancement Group, Mercer Advisors, CAPTRUST, Merit Financial and Cerity Partners, according to statistics compiled by consulting firm DeVoe & Company.

For the second year in a row, RIAs bought more firms than consolidators, moving their share of deals to 29% last year from 23% in 2021, the company reported.

That said, annual M&A activity among RIAs slowed in 2023 for the first time in more than a decade, the San Francisco-based firm's RIA Deal Book report found.  

The year’s total transactions declined 5% from the prior year, with 251 transactions last year and 264 in 2022. The primary reasons for the decline were high interest rates, longer due-diligence processes, new deal structures and “a greater emphasis on the true value of a buyer’s equity,” the report said.

“Putting the year in a broader perspective, 2023 was not a bad year,” the report said. “M&A activity approached 2022’s levels, eclipsed 2021’s and nearly tripled the transaction volume of five years ago.”

The current M&A environment remains healthy, the report said, adding that attracting talent, growth and expanding geographic territories are the primary drivers of M&A for both buyers and sellers.

The report noted that some potential acquirers are being left out in the cold—specifically next-gen advisors who want to become owners. While most founders aspire to sell internally, less than one-fifth of advisors think that will be possible given increasing valuation and higher interest rates. Back in 2020, 39% of RIA executives thought the next generation would be able to buy them out. That percentage fell to just 18% in 2023, the report said.

“RIA owners who wish for their firms to remain independent should create a viable plan today,” the report said. “Time is the enemy, as each quarter of delay puts more pressure on a given firm’s affordability factor.”

Mega-firm sellers with more than $5 billion in AUM completed 31 transactions last year, more than double the 15 of 2022. Large sellers, with between $1 billion and $5 billion in AUM, saw a 9% increase in activity last year, the report said.

Meanwhile, mid-size firms with between $500 million and $1 billion in AUM reported a sharp decline in sales, logging only 34 last year compared with 62 in 2022. Small firm sales remained relatively flat at 125 compared with 131 the year prior.  

DeVoe predicted that there will continue to be a healthy supply of RIAs for sale as advisors retire without putting a succession plan in place.

The report follows the release of a similar overview by Echelon Partners earlier this month.