The RIA industry may reach a point where there are more firm owners wanting to sell than there are buyers, warned David DeVoe, founder and CEO of DeVoe & Company, a consulting firm for RIAs.

At that point, sellers will not be able to select the best fit for their firms because they will not have a choice of buyers, DeVoe said during the opening session of the DeVoe M&A and Succession Summit today.

The number of mergers and acquisitions has been increasing year over year for the better part of a decade, even this year with the pandemic, DeVoe said. If the rate of increase stays at about 30% a year, the industry will remain healthy, but if it climbs to 50% or 60% it would be more than buyers could handle and would depress firm valuations, he said.

“We have gone many years with not enough transactions taking place, so there is a pent up demand,” even though the number of transactions continues to grow each year, he said. Even with the pandemic 2020 is on track to set a new record with 111 transactions having taken place in the first nine months.

There was a lull in M&A activity shortly after Covid-19 hit, while most firm owners and advisors were busy taking care of and reassuring clients, but then activity picked up again. Right now, a desire to take advantage of large firms’ technology resources is driving the M&A activity, but an increase in succession planning will take over soon and remain the impetus for M&As for several years, DeVoe predicted.

In addition, more firms will begin to include minority owners as the second and third generations take over from the founders.

“Owners who are considering selling or reorganizing should think about how much control they want to retain in the firm and what departments they need to keep under their control” as they consider selling minority shares to the next generation of planners, he said.

The future will see the emergence of more firms with $10 billion in AUM, but there will still be a place for small and mid-sized firms, DeVoe predicted. As firms become larger, they will take the leap to hiring professional managers, who do not do client-facing jobs.

“The industry has great momentum right now,” DeVoe said “It is in a healthy space.”