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10 Top Trends for RIAs, Dealmaking: DeVoe Summit

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What You Need to Know

  • Hybrid work, RIA M&As, diversity and fintech were among the standout topics at the DeVoe M&A+ Succession Summit.
  • Companies that develop the right hybrid work formula are expected to attract the best talent.
  • More RIA firms need to create succession plans.

Hybrid work, RIA M&As, diversity and fintech were among the standout topics last week at the two-day DeVoe M&A+ Succession Summit in San Francisco that was also available to view virtually.

Here are the 10 top takeaways from the summit sessions that ThinkAdvisor covered Thursday and Friday:

1. Companies that develop the right hybrid work formula will win the talent war.

Charles Schwab started a hybrid work strategy in which staff members have all been given “90 days of flexibility to work from another location” aside from the office each year, Bernie Clark, head of Advisor Services at the firm, said during the Friday keynote.

“We think that’s a new demand of the workforce of the future,” he told attendees, predicting: “Whoever gets this more right — and I’m not saying we have it right [but] we have it more right than we used to — is going to attract the best talent.”

A lot of people are either happy to be back at their offices already or look forward to returning to their offices, he said. “But they want a little more flexibility; there’s nothing wrong with that. There might be a little less travel. Let’s not demonize the virtual world because we’re so tired of it.” Just make sure to use it “in an appropriate way,” he added.

Advisory firms have “always employed this flexibility,” he said, noting: “Their offices have been more open. Many advisory firms don’t have stated policies” around this.

He warned: “If you don’t show flexibility, you are going to have great challenges in the future attracting talent.”

Many advisors also “don’t want to live in expensive places” and are choosing to work from locations that are less costly and work remotely if the firm they are working for is located in a more expensive area, Clark said.

“That’s an interesting population of people for us to attract: Talent that sits somewhere other than where we are and yet they have what we need in capability,” he pointed out.

In a panel session Thursday on the state of the RIA industry, Ben Harrison, managing director, at BNY Mellon | Pershing, said: “The appetite for a five-day” work week “in the office environment is gone.” Now, it’s “about creating an environment for employees and talent that really gets that balance of in-person as well as remote work and I don’t see that changing,” he added.

During the same panel session, Ed Moore, special advisor at DeVoe & Co., said: “Advisors that I talk to today — those that have mature books — are saying they have no reason to go back into the office again.”

2. A potential area of concern is a weakening of relationships.

Despite the growing desire among many advisors to continue working remotely and meeting with clients virtually at least some of the time, the “real question to ask for the future … is if I’m in Zoom meetings with clients, what does that do the client relationship?” asked Moore.

“Do I have the depth of relationship that I would have” with in-person meetings?

“The second question [is] what does that mean for the depth of relationship that we’ve got with our employees?” Moore wondered, adding: “The transient nature of that would concern me as well.”

3. Increased work flexibility could raise the share of advisors who are women.

Only about 31% of financial advisors are women, according to the Bureau of Labor Statistics.

As in other sectors, some advisors, the majority of them women, stop working to raise children. But many of those advisors would love to start working again, David DeVoe, CEO and founder of DeVoe & Co., said during the Thursday panel session.

“What hopefully is starting to happen here is that flexibility across different companies” will allow many of those women to return to work again, in a part-time position and/or by working remotely, he said. “Hopefully, this opens up a path which our industry, in particular, could benefit from.”

4. Technology has changed employee expectations in the industry.

“The expectations for tech are quite different than they used to be five years ago or 10 years ago,” and advisory firms’ systems are “certainly not as advanced as they’re going  to be” to solve the needs of advisors and clients, Moore predicted.

The tech, however, “doesn’t always work, it’s not always seamless, everything’s not always integrated,” according to Brian Hamburger, founder of MarketCounsel and the Hamburger Law Firm, who moderated the panel session.

“With a lot of acquisitions now, firms are not necessarily being acquired because of their tech but “in spite of the proprietary technology” those firms have, Hamburger said.

More on this topic

Meanwhile, the FAANG tech companies (Facebook, Amazon, Apple, Netflix and Google) “seem like they have their own set of challenges that are a little different today than they were a year ago,” according to DeVoe.

But “I wouldn’t count them out” when it comes to the financial services sector, DeVoe said, predicting: “Five years from now, I think that’s going to be a bigger part of the discussion” because of the connection that many people, including younger consumers, have with them, he said.

5. The big fish are eating other big fish.

“Something I had completely wrong … is I thought” more of the M&A activity was “going to happen in the small end of the space,” Clark conceded during the Friday keynote.

That is because, with the increased regulation and “sophistication” in the industry, “I thought smaller firms were going to be forced into joining other firms,” he said. But “the truth is” that what happened is the most significant M&As have “started at the top; it’s billion-dollar firms coming together with billon-dollar firms,” he said.

“Integrations are really hard,” as witnessed firsthand with the ongoing integration of TD Ameritrade into Schwab’s operations, Clark said. That merger closed a year ago.

“If you’re going to do them, you might as well do them with material impact,” he noted.

However, “I don’t believe this [means] the elimination of small firms,” he added. “This industry grew up on personalization. It grew up on deep, deep relationships. I think there’s always going to be room for those local firms, smaller firms.”

6. RIA dealmaking continues to be strong.

During the opening address on RIA Industry and M&A trends on Thursday, DeVoe told attendees: M&As are “hot in the RIA industry …. As a matter of fact, we have now officially eclipsed 2020 numbers. We’re only three quarters in[to 2021 and] we’ve already done more deals than we did last year.”

2021 also represents the “eighth successive record year of M&A activity,” he said, echoing what his company reported in September. With 59 transactions and a couple of days to go in the July-to-September period, the RIA industry had already surpassed the record 58 transactions in a quarter set in the first quarter of this year, the firm said at the time.

7. Expect modest consolidation to continue.

“This is a hyper-fragmented industry. It’s going through a natural period of consolidation,” DeVoe said.

But it’s “not going to be massive consolidation,” he predicted. We are “not going to go from 10 or 13 firms, however we define it, down to two or three or even five or eight. I’m not sure if we’ll collapse more than 10,” he noted. In other words, this consolidation won’t be like what we saw in the travel industry a couple of decades ago, he added.

8. RIA firms are fielding increased M&A inquiries.

RIA firms are fielding increased M&A inquiries now and are getting about 7-8 calls each year on the subject, DeVoe said.

According to the preliminary results of his company’s 2021 RIA M&A Outlook Study, 37% of the firms surveyed said they received 10 or more inquiries over the past two years, 21% said 6-19 and 34% said 1-5. Only 7% received no inquiries.

Meanwhile, 32% of those polled said the number of inquiries they received had increased significantly, while 30% said the inquiries had increased somewhat, compared with 34% who said the number remained the same.

9. A prolonged M&A surge could lead to trouble.

“What we’re starting to potentially do is bump up against a constraint of buyer capacity,” according to DeVoe. To buy RIA firms, “you’ve not only got to sit down, negotiate a deal and get it done; you also often have to integrate these organizations as well,” he said.

“If we continue to see doubling of mergers and acquisitions year after year, even a 50-80% increase year after year, I think that has the potential to create an unhealthy dynamic,” he told attendees.

“We have too many sellers coming [into] the marketplace, the buyers can’t absorb them, valuations could compress, and sometimes the music stops and you’re sitting with a dance partner that you didn’t want to sit down with,” he warned.

10. Many RIA firm owners still aren’t creating succession plans.

Perhaps more concerning is the fact that many RIA firm owners still aren’t creating succession plans, DeVoe warned.

“Succession planning is a problem in the industry and I think the industry knows it. We’ve seen another uptick in terms of succession planning being a big problem for the industry,” DeVoe told attendees. Ninety percent of those polled said they believed the lack of succession planning is a problem for the industry, he said.

(Pictured: Bernie Clark, head of Schwab Advisor Services)