Brisk Asset Management Firm M&A Activity to Continue in '17: Casey Quirk

The study notes that a number of financial advisory networks, backed by private equity in many cases, continued to roll up smaller RIA networks in 2016, a trend that likely will continue in 2017.

The activity should continue to be brisk in 2017. Aging population demographics are affecting industry asset levels and flows.

Also, the “broad shift to passive management is putting pressure on industry fee levels and placing greater value on players with strong distribution platforms, as well as those which have invested in technology infrastructure to drive back-office cost efficiencies,” the study says.

Private equity firms will become “less active buyers, and potentially more active sellers, taking advantage of a growing number of strategic buyers with open checkbooks,” the study says.

The study lists the following four factors as contributing to M&A activity this year:

1. Economic pressure. Deteriorating economics in the operating environment are pushing asset managers towards significant change, including shrinking profits margins and fee pressure:

2. Distributor consolidation. The number of advisor decision-makers is decreasing and buying power is consolidating as distributors want their manager relationships to be fewer and deeper. This is applying further pressure on the investment management industry.

3. Need for new capabilities. As fee pressure rises and passive substitutes appear more attractive, especially to outcome-oriented individual investors, most active asset managers will need to provide more differentiated products in order to maintain current fee levels.

4. Shifting value chain. As individual demands for outcomes become a driving force in the industry, investment management M&A transactions will reflect combinations of products and services designed to support more holistic advice. Likely deals will include:

• Insurers and wealth managers combining forces to blend insurance and asset management products in portfolios built around providing steadier sources of income and cash flow.
• Asset managers seeking wealth managers to integrate better portfolio allocation skills into more direct relationships with customers.
• Both asset managers and intermediaries acquiring robo-advice technology to gain direct distribution, value-added services for advisors, and efficiencies in servicing small accounts.
• Defined contribution recordkeepers being bought and sold, as both intermediaries and asset managers explore tapping a growing pool of DC assets, particularly if policy begins to enforce regulations discouraging rollovers.

— Check out Insurance Distributor Dealmaking Remains Strong: Conning on ThinkAdvisor.