There were 228 mergers and acquisitions among U.S. registered investment advisor firms from 2000 to July 2006, with an estimated deal value totaling $1.5 billion, according to a report presented Oct. 23 at the Financial Planning Association annual convention in Nashville.

Philip Palaveev, a senior manager at Moss Adams LLP, Seattle, said his company’s study found an active and growing M&A market for financial advisory practices. The study was sponsored by Pershing Advisor Solutions, a unit of the Bank of New York.

Firms in the study had assets under management of at least $100 million and served individual clients rather than institutions.

The 228 deals covered by the study comprised firms representing 4% of the total population of RIAs fitting the study profile.

New York, Chicago, Florida, Southern California, Washington and Philadelphia were the hottest markets for M&A deals in the industry, Palaveev said.

Firms that advertised themselves as “for sale” received on average up to 15 offers, yet even firms not actively seeking a buyer received up to 5 inquiries from potential suitors during the study period, he said.

In terms of deal size, 24.5% involved total payments of over $50 million, while almost 23% were valued at between $20 million and $50 million.

Banks were the leading buyers, accounting for 50% of transactions, or 17 deals, in 2005 and 43%, or 6 deals, so far this year.

Banks primarily look for deals that fill gaps in their investment or wealth management services, Palaveev said. They tend to make higher offers than other categories of buyers because they have ample capital, he added.

Registered investment advisors accounted for 30% of the acquiring firms last year and 36% so far this year. They tend to target smaller RIAs looking to pass the company on to a successor. These buyers’ primary focus is to take advantage of the scale, cooperation and efficiency possible through acquiring a business that can complement existing services, Palaveev said.

Consolidators, or holding companies, accounted for 21% of 2005 transactions but only 3%, or a single deal, in 2006. These firms seek RIAs with well-motivated leadership and high growth potential. They tend to buy out firms where the principals seek to cash in their equity in the business but continue to run the firm, Palaveev said.

CPA firms accounted for only one 2005 transaction and none so far this year. When CPAs purchase RIAs, it is generally because they want to offer wealth-management services to their existing clients. Acquiring a firm that is “a good cultural fit” is also important to many CPAs, Palaveev said.

Trust companies accounted for only one transaction last year and none so far in 2006, the study found. Such companies tend to focus on acquiring large firms with a solid reputation that let the buyer establish a presence in a major city. After the sale, trust companies usually leave the RIA to run its business independently, he said.

Buyers have begun to look with increased interest at acquiring RIAs with $300 million or less in assets under management, he reported. That is largely because principals of larger RIAs tend to want to maintain their independence and so are less interested than smaller ones in selling out, he said.

Although average transactions were valued at three times revenue, many acquirers do not pay much attention to revenue multiples, the study found. More important is an earnings record that is considered likely to be transferable to the acquiring firm, Palaveev said.

Moreover, many deals are predicated on post-acquisition performance, he noted. The ultimate value paid to principles of the acquired firm often relies on the firm reaching specified earnings targets, with additional kickers often thrown in for especially strong growth.