2020 in Review: M&A Activity Continued Unabated

Apart from the influence of the coronavirus pandemic, few retirement plan adviser industry trends received more headlines this year than the pace of mergers and acquisitions.

As 2019 drew to a close, many retirement plan industry watchers suggested 2020 would be a year defined by the rapid pace of merger and acquisition (M&A) activity among advisory firms, recordkeepers and asset managers.

Though 2020 bucked most peoples’ expectations in many other ways, the predictions about M&A action have panned out in full. In fact, despite the challenges presented by the coronavirus pandemic, financial services M&A activity easily set a new record this year.

According to data shared by Fidelity, November was the single largest month for M&A activity—by a significant margin—since the firm began tracking such activity in 2016, with a total of 15 registered investment adviser (RIA) focused deals and $45.7 billion in client assets under management (AUM).

Fidelity’s data shows November surpassed the highest monthly AUM record by $21.3 billion, or a whopping 86%. Nearly half of November’s deals involved sellers with $1 billion or more in client assets, totaling 91% of the month’s AUM. Not only was November the largest single month of activity as measured by AUM, but AUM volume in the past six months nearly eclipsed all of 2019, which itself was a record-setting year.

“We’re seeing a significant amount of large deals, as well as new investors continually entering the space,” explains Scott Slater, Fidelity institutional vice president of practice management and consulting. “It’s important for every firm considering an eventual sale to develop a clear strategy, including timing and desired buyer characteristics, in order to capitalize on today’s opportunity.”

Given so much activity, it can be hard to recall the specific deals that have significantly reshaped the retirement plan industry landscape this year.

It was way back in February and well before the full onset of the pandemic, for example, that the national health care and insurance benefits provider OneDigital announced it had acquired Resources Investment Advisors LLC. Just a few weeks after that deal emerged, the industry learned that Franklin Templeton had entered into a definitive agreement to acquire Legg Mason Inc., and that Morgan Stanley and E*TRADE Financial Corp. had also entered into a definitive agreement in which Morgan Stanley would acquire E*TRADE. Morgan Stanley followed this deal up with the acquisition of Eaton Vance.

Those deals seemed to open the 2020 M&A floodgates and were quickly followed up by other major mergers and acquisitions, such as Aon and Willis Towers Watson announcing a definitive agreement to combine in an all-stock transaction and Goldman Sachs announcing its acquisition of Folio Financial. Such deals underscored the ambition of certain firms to create true “vertical integration” in the advisory space.

In addition to adviser- and asset manager-focused deals, 2020 also saw significant activity for recordkeepers. In July, Infosys announced it would assume day-to-day operations for Vanguard’s defined contribution (DC) plan recordkeeping business, including software platforms, administration and associated processes, the firms announced.

Sources tell PLANADVISER that M&A action should continue at much the same pace in 2021. In fact, some believe the pace could accelerate even further as new strategic players enter this space.