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RIA M&A Deals On Track to Hit Record Highs: Report

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According to Echelon Partners, the second quarter of 2018 was the “most active RIA M&A quarter ever.”

Echelon Partners recently released its RIA M&A Deal Report for the second quarter of 2018. As Echelon predicted in the first quarter, record-high deal volume was sustained in Q2.

“We are looking back on the most active RIA M&A quarter ever, exemplifying the current strength of the RIA marketplace,” Mike Wunderli, a managing director at Echelon Partners, said in a statement.

(Related: More Mega-Teams Are Breaking Away: Schwab’s Clark)

A “highest-ever” 48 RIA M&A transactions were consummated in the second quarter. These second quarter transactions involving RIAs were a considerable 14% higher than the 2017 quarterly average of 42 deals, which Echelon says made it the highest quarter of RIA M&A transactions ever recorded.

This marks just the second time in the past five years that Echelon has witnessed RIA M&A activity in the second quarter exceed first-quarter activity.

“As the yield curve threatens to invert and this economic cycle presses towards record length, it is possible some business owners are seeking liquidity while valuations are attractive and buyers are plentiful,” according to the report. “This late-cycle consolidation can be expected to continue as RIAs remain attractive assets for buyers.”

Breakaway activity maintained its swift pace in the second quarter, with 123 departures, as fears of an impending end to the broker protocol pact have subsided.

“Economic conditions have also allowed breakaways to remain at near-record levels, as advisors seem to have gained confidence from witnessing so many successful breakaways in Q1,” Wunderli said in a statement.

Robust breakaway activity in the second quarter of 2018 marks an increase over the 72 breakaways in last year’s second quarter. However, the second quarter saw activity decrease 4% relative to Q1 2018.

Echelon thinks that the spike in breakaway activity will persist over the coming months as advisors actively seek independence — and as recent fears of increased litigation risk have proven to be overstated.

In addition, Echelon reports that the perceived legal risk for departing one’s firm with clients in tow has largely waned. According to Echelon, a retrospective of successful Q1 breakaways producing limited legal backlash has strengthened advisor confidence.

The second quarter’s impressive 123 breakaways was 18% above the historic average of 104 quarterly breakaways over the past twenty-one quarters, according to the report.

Looking forward, Echelon expects the M&A and breakaway activity to continue in the second half of 2018.

According to Carolyn Armitage, a managing director at Echelon Partners, this trend will likely continue thanks to large consolidators, bank buyers and retiring advisors.

“Large consolidators continue to drive RIA M&A activity as they leverage their proven track records and abundant resources,” Armitage said in a statement. “However, it is worth noting that there has been a resurgence amongst bank buyers. Additionally, as senior advisors look to retire and transition their businesses, they are looking for experienced successors that can sustain the growth and culture of their firm.”

Given the market environment, and age of the current business cycle, Echelon expects the M&A and breakaway activity to “continue, if not accelerate, in the second half of 2018,” according to Armitage.

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