Schwab Reports Fewer, but Bigger, Advisor M&A Deals in 2012

That move was prompted not only by the cultural differences that often crop up whan a bank acquires an RIA firm, but also because the banks "have had their own set of issues" relating to the financial crisis and being TARP recipients in many cases. "The question," said Devoe, is when the banks "may return more aggressively" to M&A of advisor firms, noting that the latest Schwab figures show that "the regionals have ticked up," while the national banks are still on the sidelines. 

DeVoe said that RIAs are acquiring their peers to achieve both growth and scale. However, he says that "historically, going back five to 10 years," the primary M&A rationale for advisors was to achieve growth. Now, he said, "We're slowly and steadily seeing a change in that mentality; advisors are becoming more sophisticated and more strategic—acquiring to expand their geographic footprints, their services" and for reasons related to succession planning. "It's good to see" that development, he says, since "acquiring for strategic reasons is a powerful thing."

DeVoe expressed concern, however, over the number of advisors who still don't have a succession plan, pointing to the large number of advisors "likely to exit this business for retirement" over the next five to seven years. "The lack of succession planning is an exposure for the RIA space," he said, projecting that "over time we'll see more transactions for succession reasons" of advisory firms.

"There's so much value in creating a succession plan and a continuity plan," DeVoe said, for both the advisor and his clients. "If the client isn't asking, 'What happens to me if something happens to you?,' they're thinking about it," he said. Especially for sole proprietors or owners of firms that are "responsible for getting new clients, that creates exposure" as well.

On the other hand, DeVoe said, implementing a succession plan "demonstrates [to clients] that you have a plan in mind for mitigating the risk" to their assets in the event of the advisor's death or disability. "Each year," he said, "we see more and more distressed sales." To clients but also to potential acquirers, having a succession plan "also demonstrates strong business planning; a methodical approach to doing business" which might aid in client retention and would also make a firm more valuable to those acquirers, regardless of their business models.