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Financial Planning > Behavioral Finance

Advisor M&As to Make Comeback in ’14: Tiburon

By Janet Levaux

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A recent report by Tiburon Strategic Advisors found that mergers and acquisitions by registered investment advisors slowed quite a bit last year.

The number of M&As deals in the RIA space dropped to 18 as of September, compared with 45 for all of 2012, 57 in 2011 and a high of 70 in 2010.

However, these deals and other advisor-related MA&s should jump in 2014 due to the growing presence of roll-up firms or aggregators of financial advisors, the consulting group suggests. In addition, strategic buyers — namely CPA firms and banks  — are expected to jump back into this M&A space, it says.

“Legitimate financial advisor aggregators have finally emerged,” Tiburon experts explain in their latest analysis of advisor M&As, released a weak ago. “Financial advisor aggregators and service providers are emerging to challenge the power and profit margins of the traditional independent financial advisor back-office service providers.”

As of late 2013, there were at least 17 advisor aggregators, compared with fewer than 10 in 2009, the report notes.

Aggregators have completed some 220 cumulative transactions involving about $73 billion in total client assets under management. They account for about 30% of all fee-based financial advisor assets under management, up from 8% in 2003.

The biggest aggregator to date is National Financial Partners with 153 deals, followed by Focus Financial Partners with 23 and HighTower with 21. Tiburon notes that Focus Financial is the leading financial advisor aggregator as measured by assets under management.

Late last year, Focus Financial Partners — led by CEO Rudy Adolf — said 17 independent RIAs with more than $1.6 billion in client assets have entered into deals with its Focus Successions program since the project launched in 2012.

The firm has about $65 billion in total client assets and 27 wealth management partners. “The absence of robust continuity plans for small and midsize advisory practices remains one of our industry’s greatest risks,” said Managing Director Michael Paley, in a statement at the time.

For its part, HighTower picked up its 41st team in late November from Merrill Lynch. The rollup firm was formed in 2008.

According to Tiburon, there are several factors driving M&As in the advisory field:

  • Most financial advisors, about 75%, lack succession plans;
  • Very few advisors have completed a professional valuation;
  • More than half of fee-based advisors plan to sell their businesses upon retirement;
  • Half of independent reps intend to sell their businesses upon retirement; and
  • More than 90% of insurance producers want to build their practice in a way that lets them produce equity.

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Check out Roame Predicts Next Scandal in Advisory Industry on ThinkAdvisor.

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