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Advisors Expect M&A Surge in Next 12 Months: Nationwide

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What You Need to Know

  • Two-thirds of financial professionals surveyed expect M&A activity in the RIA sector to increase over the next year.
  • RIAs and fee-based financial professionals say increased opportunities to sell their business is one of the top benefits of M&A.
  • Just 13% of financial professionals surveyed say consolidation and M&A activity will adversely affect their business in the next 12 months.

Two-thirds of advisors and financial professionals in a new study from Nationwide said they expect M&A activity in the RIA sector to increase over the next 12 months. Fifty-four percent expect M&A to positively affect their practices this year, up from 42% in the 2020 study.

“Our seventh annual Advisor Authority study makes it crystal clear that RIAs and financial professionals in the wirehouse and broker-dealer channels are more bullish about M&A than we’ve seen in years,” Craig Hawley, head of Nationwide Annuity Distribution, said in a statement. 

“Valuations are rising as markets hit new highs and private equity gets in on the game, meaning some advisors and financial professionals are more than ready to monetize their practice. We also see a spike in consolidations as others are ready to double down and make their practice stronger — the need for scale, the impact of fee compression, the price tag for technology and the cost of compliance hits all firms hard, especially the smallest.”

The Harris Poll conducted an online survey from July 22 to Aug. 17 among 790 RIAs, 790 broker-dealer reps, 501 wirehouse advisors and 160 other financial professionals, and 839 adult investors. 

Bullish on M&A 

At midyear, M&A activity in the RIA industry is on pace to surpass last year’s high-water mark and hit a record for an eighth consecutive year, Nationwide said. The DeVoe & Co. RIA Deal Book noted that the rise in activity was largely driven by midsize firms selling at twice their usual volume. 

Nationwide found that 73% of RIAs and fee-based financial professionals, 74% of wirehouse financial professionals and roughly 65% of BD financial professionals say that consolidation and M&A in the RIA industry will increase. 

Expectations for deal flow are substantially higher than they were last year, with RIAs and fee-based financial professionals up 14 percentage points, wirehouse financial professionals up 9 points and broker-dealer financial professionals up 5 points. 

Fifty-five percent of RIAs and fee-based financial professionals also expect M&A activity to have a positive effect on their businesses in the next 12 months, up from 39% last year. Likewise, wirehouse financial professionals, 68% vs. 38%, and broker-dealers, 52% vs. 39%. 

The Many Benefits of M&A

Among survey participants who expect M&A to have a positive effect on their business, 2021 is the first year of Nationwide’s study that RIAs and fee-based financial professionals say increased opportunity to sell their business is one of the leading benefits of M&A. 

Thirty-five percent of RIAs and fee-based financial professionals cited increased selling opportunities as the top benefit of M&A, compared with 22% in 2020. 

Nationwide said 2021 is also the first year that wirehouse financial professionals cite increased opportunities to sell their business as the leading benefit of M&A, up 13 points from last year and 38% and higher than previous years. 

And broker-dealer financial professionals this year cite increased opportunities to sell their business as the second most important benefit of M&A, up 10 points from last year to 34% and substantially higher than prior years. 

For years, advisors and financial professionals have said attracting and retaining clients is key for greater profitability and greater growth. M&A is one way to ensure that they have the resources to serve clients, according to Nationwide. 

In fact, among RIAs and fee-based financial professionals who expect M&A to have a positive effect on their business, they have selected greater resources to serve their clients as a top benefit of M&A every year of the study, with the exception of last year, when it tied for the second most important benefit. 

Wirehouse financial professionals, too, have selected the greater resources to serve clients as the top benefit of M&A every year, with the exception of this year, when it was the third most important. Meanwhile, broker-dealer financial professionals selected it third most important this year, down from the most important benefit in 2020. 

After a year of managing the pandemic’s fallout and preparing for its unknowns, more advisors and financial professionals have a succession plan in place: 77% of RIAs and fee-based financial professionals have a succession plan, up 7 points over last year; 84% of wirehouse financial professionals, up 5 points; and 81% of broker-dealer financial professionals, up 9 points. 

For many, M&A is part of an effective means of succession planning. In fact, among RIAs and fee-based financial professionals who expect M&A to have a positive effect on their business and wirehouse financial professionals, both up 7 points from last year to 34% and 35%.

While among broker-dealer financial professionals creating a succession plan is tied for the fourth most important benefit of M&A, it is also up 7 points from last year at 32%. 

Some advisors see M&A as a way to scale up, allowing them to expand rapidly and serve more clients more efficiently. Among both RIAs and fee-based financial professionals who expect M&A to positively affect their business, greater resources to expand and scale their business is tied for the third most important benefit of M&A, up slightly from most prior years, except 2018, when it was the second most important. 

Wirehouse financial professionals say that greater resources to expand and scale their business is not among their top three benefits of M&A, and this factor has declined in importance since 2018. 

In contrast, among broker-dealer financial professionals, greater resources to expand and scale their business is the leading benefit of M&A this year, and has been consistently among the top two benefits in previous years as well. 

While more advisors and financial professionals see M&A as a way to exit the industry, others say it creates buying opportunities. RIAs and fee-based financial professionals who have a positive sentiment about the effect of M&A say the third most important benefit, tied with expanding and scaling their business, is increased opportunities to buy another practice. 

Wirehouse financial professionals do not cite increased buying opportunities among the top three benefits of M&A, although it has been trending upward since 2019. For broker-dealer financial professionals, increased buying opportunities has been increasing steadily year over year, and this year is tied as the second most important benefit of M&A. 

M&A Part of the Path to Success

Year over year, Advisor Authority has shown that the most successful advisors and financial professionals — those who earn more than $500,000 or individually manage total assets of $250 million or more — are consistently more bullish about M&A than all other advisors and financial professionals, and they are also more optimistic about the benefits to their firm. 

Sixty-three percent of successful advisors and financial professionals say M&A activity will positively affect their businesses in the next 12 months, compared with 51% of all other advisors and financial professionals. 

Thirty-seven percent of successful advisors and financial professionals who expect a positive effect on their business from M&A say the top reason is increased opportunities to sell their business, while 36% said it is greater resources to serve their clients and 34% cite allowing them to provide ongoing employment for current workers. 

M&A Concerns Low

Just 13% of all advisors and financial professionals in the study say consolidation and M&A activity in the RIA industry will negatively affect their businesses in the next 12 months, including 11% of RIAs and fee-based financial professionals, 9% of wirehouse financial professionals and 15% of broker-dealer financial professionals. 

Among the three most common concerns of those who expect M&A to have a negative business impact, 40% of RIAs and feed-based financial professionals, 37% of wirehouse professionals and 38% of broker-dealer professionals cite pricing compression. 

Increased competition is a top-three concern of 37% of RIAs and fee-based professionals, 39% of wirehouse professionals and 40% of broker-dealer professionals. 

Making it harder to compete as a small independent firm is cited by 39% of RIAs and 37% of broker-dealers, while pressure to sell products that might not be right for their clients is cited by 35% of wirehouses and 37% of broker-dealers.