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.