July 21, 2010

Schwab Study: RIA Mergers and Acquisitions Accelerated in First Half

The activity pipeline is strong, indicating momentum will continue

The independent RIA industry experienced strong merger-and-acquisition (M&A) activity during the first half of 2010, according to data compiled by Schwab Advisor Services. In an announcement on Tuesday, July 20, Schwab said volume set a first-half record, with 40 deals completed, representing $30 billion in assets under management (AUM). The average deal size was $771 million.

After four record-setting years from 2005 through 2008, M&A activity stalled in 2009, when the number of transactions dropped to 71 from 88 the previous year. The pause was not surprising, given the distractions besetting the market, said David DeVoe, managing director of the strategic business development group at Charles Schwab, in an interview.

Now, said DeVoe, RIAs have strongly reengaged in M&A activity, and he expects this interest to continue for at least the next five years. He noted that the activity is driven by several structural changes going on in the industry. One is demographic: The RIA sector is graying, and thoughts are turning to succession planning. The average age of advisors is now over 50.

As well, private equity firms are recognizing the value of the RIA industry and making deals, said DeVoe. So, too, are consolidators whose numbers have increased from a mere handful a few years ago to more than 20 today.

Finally, said DeVoe, there is growing sophistication among advisors about M&A. In fact, RIAs dominated the buyer segment during the first half, taking part in 54% of deals. Larger advisors are acquiring smaller firms to augment their existing teams and client rosters. In the first half, he said, 50% of sales were of firms with less than $250 million in AUM.

DeVoe expects this momentum to continue, based on several leading indicators. He said investment bankers and M&A participants he speaks with tell him the pipeline for new deals is strong. In addition, participation in Schwab's monthly calls and webcasts has dramatically increased over the past year, from 50 attendees to more than 200. And Schwab's online M&A facilitator has seen a 70% spike in usage, indicating that RIAs want to get smarter about M&A and to do deals. Fifty percent of users are buyers, and 40% are sellers, he said.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.

Reprints Discuss this story
This is where the comments go.