Many financial advisors had their hands full recovering from the Great Swoon of '08 (and early '09), so it's no surprise that mergers and acquisitions among RIAs slumped last year.

According to Schwab Advisor Services, there were 71 M&A deals involving RIAs in 2009, down from 88 deals the prior year. The total dollar amount from last year's deals dipped nearly 25%, to $103 million from $137 million. 

There were several reasons for this, says David DeVoe, managing director of strategic business development at Schwab Advisor Services. One, the recession had people running scared and feeling poorer, including many advisors whose practices were hammered by falling AUM, cash flows and revenue. In turn, that compressed valuations at their firms.

Perhaps equally important was that most advisors were neck deep in client service-especially early last year-and didn't have time to deal with M&A matters.

Meanwhile, banks--both regional and national--have essentially become non-players in the RIA M&A space, particularly in 2009. "Acquisitions of RIAs by banks often didn't yield the hoped-for results," DeVoe says. "You often saw cultural frictions and challenges on the cross-selling side."

The biggest consolidators of RIA assets last year were RIAs themselves, a group that acquired 55% of the total AUM involved in M&A deals. That far outpaced the roughly 30% AUM share acquired by so-called consolidators such as Focus Financial Partners, United Capital Financial Advisers and others.

"Clearly, their [RIAs] growing presence shows they're thinking strategically about M&A and how these transformational moves can enable them to achieve their overall goals," DeVoe says.

DeVoe, whose company has a vested interest in an uptick in M&A activity, believes the trend will pick up steam in 2010 due to rising cash flows at advisory firms and growing interest from private-equity firms to invest in the RIA space.

As for valuations, DeVoe says cash flow is the biggest driver of an advisory firm's worth. Other factors include having a sustainable growth story, having a strong management team and having a good next generation in place.

DeVoe says firms with less than $100 million generally sell for four to six times cash flow; firms with between $100 million to $500 million go for five to eight times cash flow, and firms larger than $500 million sell for more.