2021 M&A Lessons Learned, and What Comes Next

Many firms that have acquired established retirement plan advisory practices primarily focus on wealth management or insurance, underscoring their interest in more diversified service models and in accessing the shops’ sizable client bases.

Wise Rhino Group, a consulting firm that helps retirement plan advisory practices execute merger and acquisition (M&A) deals, has published its year-end analysis of industry dealmaking for 2021.

In opening its analysis, the firm notes it is approaching its fourth anniversary in operation, taking lessons learned from some 65 sell-side and buy-side advisory transactions in that time period, as well as from the professional backgrounds of its own staffers, who have worked across retirement industry verticals. In its experience, Wise Rhino Group says the deal process and the negotiation of terms and price are extremely important when it comes to retirement industry M&As, and there are many advisory firms that do a great job telling their story and preparing their organization for an ownership transition.  

One clear trend that has emerged in this time, Wise Rhino Group says, is that many firms that have engaged in acquisition or merger activity have historically focused on the wealth advisory or insurance benefits advisory verticals. Many have had to learn the basics of the retirement plan advisory industry during the M&A process, gaining an appreciation for the day-to-day job of retirement advisers and the challenges they face today.  

That lack of experience in the retirement advisory vertical has by no means hampered the pace of deals. Indeed, for the fifth consecutive year, retirement advisory firm M&As reached new record highs, with this trend having no end in sight. Just this year, Wise Rhino Group has tracked 62 closed transactions, and the firm projects that there will be more than 70 transactions completed by the end of 2021.

Context for these high numbers can be found in a recently published Fidelity Investments analysis that looks more broadly at registered investment adviser (RIA) M&A activity—i.e., including firms that do not have a large retirement plan advisory practice. According to Fidelity, RIA deals during the month of November totaled $42 billion in assets under management (AUM) and, year-to-date, there have been 182 RIA transactions, totaling $304 billion. These figures are up 61% and 78%, respectively, compared with the RIA deal year-to-date figure for November 2020.

As Fidelity’s analysis shows, large deals are driving much of the activity, with 75 deals registering more than $1 billion in AUM so far in 2021. This is nearly double the number of deals of this size or greater reached in all of 2020.

According to Wise Rhino Group, there are still more than 700 scaled and independent retirement advisory firms, along with another 5,250 smaller, unscaled firms and practices that focus primarily on retirement advisory services. As such, it says there is no shortage of factors driving the record M&A activity, including solid secular trends, such as growing competitive pressures and an increase in succession planning activity. Other factors that may drive another record-setting year in 2022 include significant interest from outside capital, mostly from private equity firms seeking to acquire advisory shops that can complement their existing lines of business in insurance and health care.

The retirement advisory firm buyer composition continues to be dominated by strategic RIA and insurance brokerage firms, most of which are backed by private equity. Overall, there have been 16 distinct buyers of retirement advisory firms in 2021, led by Hub International, OneDigital and CAPTRUST. These firms have made 13, 11 and 10 acquisitions so far this year, respectively. After being acquired by Aquiline Capital Partners in December 2020, SageView has completed four retirement and wealth acquisitions to date in 2021.

The Wise Rhino Group research also points to the recently announced Creative Planning and Lockton Retirement integration as an important deal to track moving forward. The analysis suggests this new retirement/wealth firm combination could very well join the retirement M&A competition. With more players continuing to enter the market, the firm concludes that evermore intense competition for high-quality targets will escalate.

The analysis also points to a related but distinct M&A trend that is impacting the third-party administrator (TPA) industry. As in the retirement plan adviser space, there are myriad buying organizations seeking to scale up their TPA businesses through inorganic means. As Wise Rhino Group explains, TPA owners are also experiencing the competitive pressures, record multiples and career opportunities seen in the advisory world.