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Industry Spotlight > Mergers and Acquisitions

Schwab: Record-Breaking RIA Deal Volume Feels Like ‘New Normal’

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What You Need to Know

  • Fidelity and Schwab released data on Thursday showing that RIA M&A activity continues to be stronger than in 2020.
  • Average deal size in the first six months of 2021 was $1.86 billion, up 19% over 2020, Schwab says.
  • The increasing demand for independent advice is driving heightened competition for attracting and retaining talent.

RIA M&A activity continues to set new records in 2021, according to data released by Fidelity and Charles Schwab on Thursday.

According to Schwab’s 2021 Assets in Motion report, 85 deals were completed in the first half of this year, almost duplicating the total number of deals in all of 2020. Nearly $160 million in total assets under management was acquired in the first six months of 2021, an increase of 19% over 2020 and 23% over 2019, Schwab said.

Average deal size was also up. More than 2 in 5 sellers in the first half of this year had more than $1 billion in AUM, while average deal size was $1.86 billion, up 19% over 2020 and 23% over 2019, according to Schwab.

“None of this really feels unsustainable, though,” according to Tony Parkin, managing director, business consulting and education at Schwab Advisor Services. “It feels more like a new normal of activity,” he told reporters in an online briefing on Thursday.

Fidelity’s Data Highlights

Among the highlights in Fidelity’s Q3 2021 M&A Report, covering M&A activity in the wealth management industry over the last quarter, and the September 2021 Wealth Management M&A Transaction Report was that September was a record month for RIA M&A activity.

There were 23 deals last month, representing $64.3 billion in client AUM, surpassing January’s record of $48 billion in client AUM by 34% and almost topping January’s record of 24 deals, according to Fidelity.

Q3 achieved another quarterly RIA M&A record, with 54 deals representing $115 billion in client AUM, Fidelity said. Year-to-date totals (135 RIA deals representing $247.2 billion in client AUM) already exceeded full-year 2020 totals (131 RIA deals representing $183.5 billion in client AUM).

There were several large deals in 2021, with more than 61 transactions of $1 billion or more year-to-date (13 in September), with eight acquirers completing one or more such transactions, Fidelity said.

“Led largely by serial acquirers seeking to build sustainable, well-branded national enterprises, the continued momentum of M&A activity last month brought about another record-breaking quarter, representing the fourth quarterly record in the last 15 months,” according to Scott Slater, M&A specialist and Fidelity Institutional vice president of practice management and consulting.

The trends echoed M&A data released by DeVoe & Co. last month. Deal totals differ among reports due to the different systems each firm uses to calculate the data.

More to the Story

“The transaction data alone only tells part of the story, however,” according to Schwab. “And a one-dimensional part at that. Behind the numbers, M&A is a very human, multi-faceted endeavor,” the firm said in its RIA Industry M&A Behind the numbers report, also released on Thursday.

Schwab interviewed the buyers and sellers in five recent transactions to get a closer look at what was happening beyond the industry M&A data, it said. The report reflected key takeaways from those interviews with executives at the five firms and provided a lens into the M&A process, as well as advice for firms that may be considering a transaction of their own, Schwab said.

The RIAs included in the interviews were American Money Management, Arrowroot Family Office, Homrich Berg Wealth Management, MAI Capital Management and Mercer Advisors.

5 Key Takeaways

1. Get focused, stay focused.

Across all interviews, executives at the firms “underscored the importance of being clear about why a transaction made sense for their firm and its clients,” according to Schwab. “They challenged themselves to define their long-term strategy, and once defined, to keep it front and center as they considered what benefits a deal could bring,” Schwab said.

“For some, it was about planning for eventual succession; others sought partners whose strengths complemented theirs or saw benefits in expanding their services or geographic footprints,” according to Schwab.

“It was also an exercise in being clear about what they didn’t want,” Schwab said in the report. “From non-negotiables around deal structure and investment philosophy, to critical intangibles such as company culture, these factors were equally important in helping firms stay focused on their long-term strategy throughout the process of identifying the right partner and navigating a deal.”

2. More than just deal economics.

“Despite the industry-wide focus on deal data when looking at M&A trends, it is clear from these interviews that transactions are about so much more than deal economics,” Schwab said.

Firms instead “highlighted the benefits of quickly adding services and capacity or offloading operational weight to focus more on clients instead of supercharging the investment philosophy,” according to Schwab.

“Across the firms interviewed, the transactions delivered benefits as unique as the firms themselves, underscoring that the ultimate success of every deal is shaped by the individuals at the heart of every deal: the leaders and management of the firms, the teams that serve clients day-to-day, and the clients themselves,” the report said.

3.  Knowing who can help fulfill your why.

“The right deal requires both a strategic and a cultural fit if it is going to be additive over the long term,” Schwab said.

“To ensure this cultural fit, successful firms prioritize alignment over numbers, and they go to great lengths, and take the time, to truly understand each other, both formally and informally,” according to the report. “Firms highlighted the importance of honest and candid conversations, they conducted due diligence and welcomed it in return, and they gravitated to shared values, integrity, and commitment to clients.”

4. Clients front and center.

“M&A is not just a means to an exit,” according to Schwab. “It is a strategic, thoughtful decision that enables buyers and sellers to continue to support their clients in the best way possible.”

The firms acknowledged how “critical it is to identify a partner that can create immense value to existing clients,” according to Schwab. “Not to mention, one with whom integration can happen without distracting from or disrupting clients,” it said.

“What did these firms look for? A commitment to being a fiduciary, a passion for service, ethical business practices, long-term relationships, and a desire to manage and grow the firm to better meet clients’ desired outcomes.”

5. Positioning for Success in the Talent War

“The growing demand for independent advice is driving heightened competition for attracting and retaining talent,” according to Schwab.

“Across the board, firms acknowledge they are only as good as their people, and they carefully considered how the transaction would impact their current teams” before going through with the transactions, Schwab said.

“Ultimately, they recognized the benefits that a transaction could bring,” the report said. “In the immediate term, it was deepening their talent bench to build out their capabilities and service offerings. Longer term, it is seen as critical for attracting and retaining talent by providing more opportunities for individual growth and development.”

(Image: Shutterstock)


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