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M&A Deals for RIAs, IBDs Up 43% From a Year Ago: Fidelity

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The momentum for mergers and acquisitions cross RIA and IBD channels continued into the third quarter, lifting the total number of deals for the first nine months of the year to 103, up 43% from the same period a year ago and setting the stage for another record year, according to Fidelity Investments.

The amount of assets also rose, increasing 13% to $551.4 billion for the same period this year. Ninety-four of the deals involved RIAs firms; nine, independent broker-dealers, but the assets among the latter deals, not surprisingly, were far greater — $434.6 billion versus $116 billion.

“The fact that we are already exceeding deals on the RIA side already just three quarters into 2019 is pretty indicative of where things are heading,” says Scott Slater, vice president of practice management and consulting at Fidelity Clearing & Custody, which advises advisory firms on deals.

RIA firms completing multiple transactions accounted for two-thirds of the total M&A activity in 2019, indicating the growing concentration of assets under management among the largest firms.

Focus Financial Partners, which went public last year, accounted for 19 of the RIA transactions year to date, followed by Dynasty Financial (6); Mercer Advisors, which sold a stake to Oak Hill Capital Group last month (5); and Mariner Wealth Advisors.

Fidelity counts the Oak Hill Capital investment in Mercer Advisors, which has $16.5 billion in assets, among the biggest deals in the third quarter. The other is Hub International’s acquisition of Global Retirement Partners, a retirement-focused branch of LPL Financial with $40.1 billion in assets, which Fidelity considers in the IBD category. Both Mercer, Oak Hill Capital and Hub International are owned by private equity firms, which remain key players in the RIA and IBD M&A market, according to Fidelity. 

Deals involving $1 billion or more in assets accounted for one-quarter of the M&A deals in the advisory space for the first three quarters of the year. 

“Even larger RIAs are selling,” says Slater. “They recognize the challenge of managing business operations, technology, compliance and even cybersecurity issues requires time and attention and that it’s easier to find a partner” that has experience and leadership to handle it all.

The current M&A scene remains a seller’s market for the financial advisory industry not only because of the number of deals and size of assets but also because of the terms of the deals. Most deals have buyers paying up to 50% to 70% of the price over one to three years, but usually one to two, says Slater, adding that those favorable terms for sellers could change if there’s a pullback in the financial market.

“The balance of power will eventually shift a bit from a heavily seller’s market to one where buyers will be in a better position to choose what the want to buy,” says Slater. “That’s potentially what firms need to be thinking about.” 

He recommends that firms also consider their mix of clients. “If there’s more than 30% of     clients over age 70, that’s not as valuable as firm with more clients 55-60 coming into the mix. Over age 70, clients are consuming assets, which will be divided up into multiple relationships when they pass on.”

The Fidelity report tracks transactions with over $100 million in assets under management or advisement, but less than $20 billion.

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