As PLANADVISER has reported, the pressure for financial services firms to add scale and the pervasiveness of prepared buyers who hold significant capital in a low interest rate environment continue to fuel record merger and acquisition (M&A) transaction activity.
After 2019 proved to be a record year for both registered investment advisers (RIAs) and independent broker/dealers (IBDs) in terms of M&A activity, 2020 is off to a quick start.
Among the deals inked so far is CAPTRUST’s acquisition of Fountain Financial Associates, a wealth management practice based in Wilmington, North Carolina. Fountain Financial Associates brings to CAPTRUST five advisers and an equal number of support staff, advising on assets of $654 million
Through its M&A activity, CAPTRUST says it is eagerly building business models that can support advisers working with both private wealth management and institutional clients. The company’s leadership building a firm that does both private wealth and institutional retirement plan business is about creating a holistic service ecosystem that clients want and need, especially as the defined contribution (DC) plan system matures and becomes a key component of individuals’ retirement income.
Early 2020 M&A news has also featured DiMeo Schneider & Associates LLC and Fiduciary Investment Advisors LLC (FIA). The firms announced in late January that they are combining to make one RIA, with approximately $180 billion in assets under advisement. Of the assets under advisement, approximately $140 billion is defined contribution assets, of which approximately one-quarter—more than 100 clients—is 403(b) plans.
Michael Goss, managing partner at FIA, says each of the two firms had grown in their own region and the combination will allow for a single organization to gain a national presence. The firm will have offices in seven locations (Austin, Texas; Boston; Chicago; Hartford, Connecticut; Los Angeles; Portland, Maine; and Washington, D.C.) and serve more than 500 clients, including retirement plans, endowments/foundations and private clients. The combined firm will have a presence in 47 states.
While substantial in their own rights, the FIA-DiMeo and CAPTRUST acquisitions were dwarfed by another early 2020 transaction—the recently revealed acquisition of Legg Mason by Franklin Templeton. According to the firms, the acquisition of Legg Mason and its multiple investment affiliates, which collectively manage more than $806 billion in assets as of January 31, will establish Franklin Templeton as one of the world’s largest independent, specialized global investment managers with a combined $1.5 trillion in assets under management (AUM) across one of the broadest ranges of investment teams in the industry. The combined footprint of the organization will significantly deepen Franklin Templeton’s presence in key geographies, the leadership team says, and create an expansive investment platform that is well balanced between institutional and retail client assets. In addition, the combined platform creates a strong separately managed account business.
“This is a landmark acquisition for our organization that unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies,” Greg Johnson, executive chairman of the board of Franklin Resources Inc., says of the news. “Our complementary strengths will enhance our strategic positioning and long-term growth potential, while also delivering on our goal of creating a more balanced and diversified organization that is competitively positioned to serve more clients in more places.”
Looking ahead, both Fidelity and PwC have recently published new research analyzing the ongoing wave of merger and acquisition activity in the financial services industry. According to PwC’s reporting, the industry has never been so ripe for consolidation. The firm cites “fundamental challenges” to the sector’s business models and pricing structures that will “probably trigger another wave of consolidation in coming quarters.”
Fidelity’s analysis reaches similar conclusions, showing 74% of firms that have recently made acquisitions or entered into a merger are planning to conduct more M&A activity in the future.
According to PwC, in addition to advisers and recordkeepers, other subsets of the financial services industry are seeing their own consolidation pressures. For example, the firm projects that 20% of mutual fund asset managers will be acquired or eliminated by 2025.