Are RIA Mergers Peaking?

Merger and acquisition activity in the RIA industry in 2018 increased by 20% over the previous year’s high-water mark, setting a record for the fifth consecutive year, Nationwide Advisory Solutions reported Wednesday, citing outside research.

At the same time, a Nationwide-commissioned survey found that 59% of RIAs and fee-based advisors expected industry M&A to increase over the next 12 months, down from 68% in last year’s survey — the first time in five years respondents were less bullish about the pace of transactions and down from a peak of 70% in 2017, Nationwide said.

This suggests, it said, there may be concern that issues with the market and the economy are eroding valuations and decreasing opportunities for transactions.

In fact, 56% of RIAs and fee-based advisors anticipated greater market volatility over the next 12 months, and 56% expressed concern about a U.S. bear market over that period, followed closely by 54% who worried about a U.S. economic recession.

“Since launching our Advisor Authority study in 2015, a growing number of RIAs and fee-based advisors were saying that M&A activity would increase — so this year’s sharp reversal in the trend could be an indicator of greater uncertainty about the market and the economy,” according to Craig Hawley, head of Nationwide Advisory Solutions.

“But at the same time that RIAs and fee-based advisors are less bullish about the pace of consolidation and M&A activity, the majority still say that these deals will have a positive impact on their business. Consolidation among firms is driven by a variety of factors — including increasing competition, rising fee compression, the need for greater scale, as well as succession planning for a generation of older advisors.”

The Harris Poll conducted an online survey within the U.S. from Feb. 15 to March 4 among 507 RIAs and 514 broker-dealers, and among 824 investors with household investable assets ranging from $100,000 to $5 million or more.

Attitude Counts

Fifty-one percent of advisors in the survey said M&A would positively affect their business, reflecting a slight upward trend in recent years — 51% in 2018, 49% in 2017 and 47% in 2016.

Nationwide said sentiment surrounding M&A activity in the RIA industry consistently showed that advisors were focused on delivering excellent service in their clients’ best interest and achieving greater scale.

Year over year, advisors who reported feeling positive about the effect of M&A activity on their business in the next 12 months cited greater resources to serve their clients and greater resources to expand and scale their businesses.

In addition, RIAs and fee-based advisors who indicated positive sentiment about the effect of M&A activity were somewhat likelier to say it allowed them to create a succession plan and it increased opportunities to sell their business.