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David DeVoe, DeVoe & Company

Industry Spotlight > Mergers and Acquisitions

6 Actions RIA Firms Should Take in 2023: DeVoe

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Although the RIA space has continued to see strong merger and acquisition activity since the pandemic started, the combination of weakness in the global economy, expected recessions in the U.S. and other countries, and the Russia-Ukraine war have created a “suboptimal condition” for the U.S. and macro global environment, according to David DeVoe, CEO and founder of DeVoe & Co.

And “several of these things are impacting the RIA space,” he said Dec. 1, during his firm’s “RIA M&A Recap and 2023 Outlook” webinar.

Although there were “a lot of pressure points that could or maybe even should be slowing down mergers and acquisitions, it keeps chugging along,” he recalled saying in September.

M&A activity in the first two quarters were up about 20% from 2021 and in the third quarter up about 30%, he noted.

Twenty deals grew to a “new normal” of 30 deals before the pandemic and then “surged” to 58-60 during the pandemic, he said.

The industry has been “running at about 68 transactions pretty consistently for the last five quarters,” he noted. But “we’ve seen a slowdown” in M&A activity since then, he said.

DeVoe provided advice on several actions they said advisory firm owners should consider now and in 2023.

Six of those suggested actions are below.

1. Take steps to keep your best advisors and other staff.

DeVoe pointed to fall data showing that 44% of U.S. employees were seeking jobs and 34% were actively looking for a new job, while another 10% intend to look for a new job.

With that in mind, he said: “Everyone should be very focused on retaining and optimizing their human capital.”

2. Consider expanding your firm to other countries.

“International’s really interesting,” according to DeVoe. “Focus [Financial] comes to mind as a firm that has set a flagpole over Europe and has been doing things for several years now” there, he noted.

There are complexities in expanding to a new country and “it’s not just setting up a post and opening up an office,” he said.

“But I think Europe — France, even England, in particular — I think are probably more attractive environments than other places,” and there have been conversations about Australia. Brazil and Canada are also worth considering, he said.

3. Consider M&A deals now instead of waiting for a return to normal.

Within the current environment, an RIA firm owner might decide to punt on potential mergers and acquisitions, DeVoe said.

But most buyers are “sophisticated,” often including “CEOs and leadership teams that have been in this for 15-18 years or more … They’re really designing this with an intelligent thoughtfulness” and know that RIAs tend to do well during a crisis and after one, he said.

But a firm’s valuation and consideration factored in during a potential merger or acquisition are typically based on factors that include a strong, loyal client base and whether the business is growing, he said. “Buyers want to have growth machines.”

4. Put a succession plan in place.

Too many advisory firms still don’t have succession plans. “If you don’t have it, it’s time” to put one in place, DeVoe said. For one thing, it shows future leaders at the firm that you want them to share in what you are building.

Meanwhile, the firm is going to be worth more to external buyers if there is a succession plan, he added.

5. Put a growth plan in place.

“The benefits of scale … are real,” and there are benefits to teaming with a larger firm, DeVoe said, explaining the importance of having a growth plan for your firm.

6. If you’re exploring a deal, make sure to find a firm and partner that are the right fit.

Make certain that your firm has synergies with another firm you’re interested in buying or merging with, according to DeVoe, who noted the significance of such a deal for an RIA firm and its owner.

If you are looking for a partner, make sure to select one who will help you achieve your goals and objectives, DeVoe added.

(Pictured: David DeVoe, CEO and founder of DeVoe & Co.)


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