In 2016, there was a record number of mergers and transactions in the RIA industry, Schwab Advisor Services reported today, echoing other recent measures of the advisor M&A space, but Jon Beatty of Schwab says the numbers are in fact a “subplot of a bigger story: the growth of the RIA industry.” Since the independent advisor space is “thriving, you’d expect M&A to follow suit,” said the senior VP of SAS in a Wednesday interview.

The Schwab report — 2016 Independent Advisor Industry Transactions — counts 94 transactions taking place last year, up 12% from the 84 deals Schwab counted in 2015, and up 74% from the 54 deals made in 2014. The average size of a transaction also increased last year to $1.44 billion, 5% above 2015’s average deal size and 64% higher than the $878 million average transaction in 2014.

Who’s buying? Other advisory firms and strategic acquiring firms, aka rollup firms, who together accounted for 70% of all transactions (independent RIA firms, 41%; strategic acquirers, 29%). Banks accounted for 9% of all deals in 2016.

(Schwab’s data is collected by the firm’s RIA custody unit and includes deals “involving primarily high-net-worth- and endowment-focused RIAs” with a minimum of $50 million in assets under management. The data also includes “advisors in transition,” including breakaway brokers, who joined existing RIAs “and received equity consideration” for doing so.)

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What’s driving the increase, particularly since 2014?  Beatty, who’s responsible for sales and relationship management at the largest RIA custodian, said there are a “number of variables” driving M&A.

Yes, the demographics of RIA owners is one of those variables, but rather than attribute the growth only to advisors’ exit plans or succession issues, Beatty puts it in a broader context.

“Buyers and sellers are coming together to find solutions to their issues,” which includes seeking scale, finding competitive advantages, and yes, to find a “succession solution for the talent in the firm; but most important “looking to create durable long-lasting businesses.” Such a shared goal — “the ongoing viability of the business” — also suggests that better deals for all parties are being made. “Others have emphasized consolidation” as a major driving force in advisor M&A growth, “but we don’t see that,” Beatty said. Instead, “firms are looking for solutions for future growth,” and prospective sellers are also now aware that “like-minded sellers” who have entered into deals “are having so much success; if you’re looking for a business to carry on, you want a like-minded” buyer who can deliver “continuity, for your employees and your clients and your investors.”

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Beatty’s takeaway? “As RIAs get bigger,” it’s logical, he said, that “M&A would march right along with that growth.”

So who are the “advisors in transition?” They include ‘breakaway brokers’ from the wirehouses, but that means both “individuals and teams” from the wirehouses but also “folks evolving from the independent BD model,” and especially the RIA “fiduciary mindset,” Beatty said. “The independent advisor industry and the fiduciary mindset sets up well for a growth-oriented advisor.”

And while the eventual fate of the Labor Deptartment’s fiduciary rule is uncertain, “that’s another sign of where the trend will be going” — toward a fiduciary standard for all advice givers — which should help sustain future growth in RIA transactions.

While Schwab Advisor Services has not yet gathered advisor M&A data for 2017, Beatty suggested that the growth in M&A has been “remarkably consistent over time,” and that we are at a “a sustainable new level.” That in itself is a “confidence booster,” he suggested, especially for prospective sellers.

— Check out Acquired RIAs Have Become Acquirers: Dave DeVoe on ThinkAdvisor.