RIA Deals Had a Record Year: Schwab

‘It’s very healthy for our industry when we see buyers and sellers come together,’ Schwab’s Jon Beatty said

The "maturing founders of this industry" are looking to retire soon, Beatty says. The "maturing founders of this industry" are looking to retire soon, Beatty says.

It’s been a record year for mergers and acquisitions in the registered independent advisor industry, according to a Schwab Advisor Services report released Tuesday.

The volume of RIA industry transactions reached a 10-year high of 84 deals in 2015, up 56% from 2014 and 127% from 2006, according to the report.

“I think of it as another one of those proof points around the success that the RIA industry is having in its entirety,” Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, told ThinkAdvisor. “It’s very healthy for our industry when we see buyers and sellers come together, and they do so for strategic reasons as well as opportunistic reasons individually. No deal is the same, and motivations can be different from deal to deal, but we certainly saw the sellers come off the sidelines in 2015 to meet offers being made by the buyers – and that’s why we saw the great success of 2015.”

According to the report, the number of deals was higher in every quarter of 2015 compared with the same quarter in 2014. The third quarter of 2015 had the most deals in a single quarter of any in the past decade with a total of 27 deals, the report finds.

In the last decade, according to the report, total annual deal value (measured in assets under management acquired) surged 252% from $32.8 billion in 2006. Last year alone, the total annual deal value jumped 143% from $47.4 billion in 2014 to $115.4 billion in 2015.

The average annual transaction size was $1.3 billion, up 53% from 2014 and the largest average since 2009, according to the report.

Beatty discussed some seller motivations that could have contributed to the uptick in transactions.

“Certainly we hear advisors talk about competition and the future, potential consolidation around price, the economic pressure on a business from an economics perspective,” he told ThinkAdvisor. “Talent is another reason why we hear advisors wanting to either sell themselves to a bigger talent team or acquire talent from another organization.”

Another motivating factor behind M&A that’s often discussed is the “maturing founders of this industry who are looking to retirement,” Beatty said.  

“We’ve known for a while about the aging population,” Beatty said. “What we’ve been watching is the industry working through that, and many are doing that with internal succession strategies. Those don’t get reported on because they’re not documented. We have known that many are interested in selling their firm, and in 2015 we saw the sellers stepping up to the offers that were out there – both monetarily and the mindset of the seller is they want that continuity for their investor and their employee and obviously at the right price.”

The report also looks at the buyers and finds that independent registered investment advisor firms (39%) and strategic acquiring firms (32%) together made up the majority of buyer types.

“The primary buyers have been consistent really for the last decade in terms of who’s most active, and that’s been established RIAs acquiring other RIAs [and] strategic acquirers,” Beatty said.

In the last year, Beatty said there was an uptick, though, in private equity buyers. According to the report, private equity firms (24%), banks (4%) and international acquirers (1%) made up other buyers in 2015.

“I’ve often said this, but the fact that we’re seeing private equity come in to this marketplace is another vote of confidence of the success of the industry,” Beatty told ThinkAdvisor. “Private equity goes where there’s opportunity.”

Schwab’s RIA industry merger and acquisition research data is compiled and analyzed by Schwab Advisor Services. The data reflects transactions involving primarily high-net-worth and endowment-focused RIAs with assets under management exceeding $50 million. The data also includes advisors-in-transition who joined an existing RIA and received equity consideration.

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