Despite the zig-zag motions of the stock market toward the end of 2018, RIAs are upbeat for 2019, according to a recent TD Ameritrade Institutional 2019 Sentiment survey. One sign of positivity is the record number of mergers and acquisitions executed in 2018, according to DeVoe & Co. Both reports found optimism in the RIA community, yet with some caution.
The market volatility in the last quarter of the year might have been a boon to RIAs, who reported growth of nearly 20% in assets and revenue in 2018, according to TD Ameritrade.
“In times of market uncertainty, investors seek out financial guidance from knowledgeable professionals,” said Vanessa Oligino, director of business performance solutions at TD Ameritrade Institutional, in a statement.
The telephone survey of 302 independent RIAs was taken between Nov. 27, 2018 and Dec. 13, 2018, a period of high volatility in the stock market. Despite the swoons, the RIAs were positive, with 63% stating they were optimistic about the U.S. economy for the near term, while 47% . That said, slightly less than half of RIAs, 47%, said they were optimistic about the global economy, and the same number said they expected stock prices to continue to increase.
The TD study found that on average, RIA assets and firm revenue grew by 18% in the latter half of 2018, while number of new clients increased by 14%. About a third said new clients left commission-based platforms in favor of independent, fee-based fiduciary advice. Half believe they will grow faster next year.
Other findings of the survey included:
- The health care sector will benefit the most from the incoming Congress, with staples, IT and financials also getting some “lift.”
- Cannabis-related stock interest is hot as 48% of RIAs reported client interest in that sector, while 45% reported client interest in investments focused on environmental, social and governance factors. However, cryptocurrencies are not getting love, with only 15% of respondents reporting any client interest.
- Client referrals still are the top driver of RIA growth, although digital marketing with traditional methods fueled new business growth as well.
- Cybersecurity is the most important issue facing the industry and should be a top concern for regulators, most RIAs stated. Technology remains the biggest management challenge.
‘Epic Final Quarter’ for M&A
The optimism found in the TD survey was mirrored in DeVoe’s 2018 recap of M&A activity in the RIA business. In 2018, there were 176 transactions, a 20% increase from 2017, according to the DeVoe report. During the volatile fourth quarter, there were a record 54 transactions — twice the number from the fourth quarter of 2017 — or what DeVoe called “an epic final quarter.”
The average size of these deals for “established RIAs” was just under $5 billion; the group had 97 transactions in 2018, a record.
“Breakaway advisors” with over $100 million grew in number and “accounted for the bulk of the overall increase in RIA M&A activity,” the report stated.