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RIA First-Half Dealmaking at Slowest Pace Since 2008: Schwab

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Completed mergers and acquisitions in the registered investment advisor space for the first half of 2013 were the lowest on record in five years, Schwab Advisor Services reported Tuesday.

The first half closed with only 18 completed transactions totaling $15.4 billion in assets under management, which is the lowest on record since the first half of 2008 when 17 deals were completed totaling $24.5 billion, according to data compiled by Schwab Advisor Services. That compares to 25 deals totaling $36 billion in AUM completed in first-half 2012 and 27 deals totaling $20 billion in AUM completed in first-half 2011.

For the second quarter of 2013, deal flow slowed to only five completed deals, though the average deal size increased to $1.9 billion from $447 million in Q1. Thirteen deals were completed in Q1.

RIAs remained the dominant buyer category for the second straight quarter, at 50%, followed by strategic acquiring firms, at 39%. The “other” category stood at 11%, while both regional and national banks had no transactions.

Jon Beatty, Schwab Advisor Services“Fewer mergers and acquisitions are a likely outcome of the rapid rate of organic growth that advisors are currently experiencing,” said Jonathan Beatty (left), senior vice president of sales and relationship management at Schwab Advisor Services, in a statement.

HighTower, Focus Financial, United Capital Are Major Players

As was the case at year-end 2012, national acquiring firms such as HighTower, Focus Financial and United Capital were the dominant M&A buyers in Q2 2013.

In late March, HighTower said MK Wealth Management, an advisory team on Long Island, joined its partnership, representing the 10th time in the past year that a new team has joined the firm, which now includes 33 teams. Focus has seen a spate of acquisitions in 2013, with the most recent one reported in August as Michigan-based Telemus Capital Partners joined Focus.

Fast-growing private wealth counseling firm United Capital Financial Advisers of Newport Beach, Calif., announced two deals in July, with the acquisition of the majority of assets of c5 Wealth Management, an RIA based outside of Washington in Great Falls, Va., and the majority of assets of Georgia-based PPA Advisors.

Deals Slow as Firms Create Value

Beatty said that advisors contemplating ownership transition may be focused right now on creating more value in their firms, leading them to delay a deal for a few years. “However,” he said, “M&A continues to be an important option for those looking to quickly gain scale, access new markets or enhance their capabilities.”

Among firms managing $100 million to $1 billion in AUM, approximately 25% are actively looking to acquire another firm, according to Schwab’s 2013 RIA benchmarking study.

Of approximately 1,000 RIAs surveyed, the top 20% saw 2012 net organic growth (defined as the change in assets from existing clients, new clients and assets lost to client attrition) of 15% of AUM growth. This compares with 2.9% net organic growth for all other firms in the study with $250 million or more. The top firms reported more referrals than other firms whether they managed $250 million to $500 million, $500 million to $1 billion or more than $1 billion.

“The good news is that advisors have more access to capital, which has enhanced their ability to invest in new capabilities and hire top talent,” Beatty said. “For some advisors, M&A is a good alternative to building out their offer in-house and can help the firm get to a solution faster.”

Read more about HighTower CEO Elliot Weissbluth in his 2013 IA 25 extended profile at ThinkAdvisor.