Even 2020 Couldn’t Dampen RIA Industry M&A Momentum

Though the whole year and the final quarter, especially, have already delivered impressive numbers, there are expectations that some additional major transactions could soon be announced.

It goes without saying that many areas of the U.S. economy have suffered in 2020, and some sectors have clearly suffered more than others.

But one aspect of the economy that has not slowed by any measure this year is the merger and acquisition (M&A) activity taking place between retirement-focused registered investment advisers (RIAs) and wealth management firms. According to the latest data shared by Fidelity, November was the single largest month for M&A activity by a significant margin since the firm began tracking such deals in 2016.

In total, November delivered 15 RIA deals representing $45.7 billion in client assets under management (AUM). This means November surpassed the highest monthly AUM record by $21.3 billion, a record which was previously set in April 2019. Tellingly, nearly half of November’s deals involved sellers with $1 billion or more in client assets, totaling 91% of the month’s AUM.

One such deal covered in detail by PLANADVISER last month was inked by HUB International and Baystate Fiduciary Advisors, an advisory firm which has been recognized repeatedly in the PLANADVISER Top 100 listing. While discussing that deal, HUB’s leadership confirmed plans to continue the company’s buying spree of established retirement plan advisory firms during 2020 and 2021. According to Adam Sokolic, who is the chief operating officer (COO) for the firm’s retirement and private wealth division, several more deals are already in their late stages.

Reflecting on the M&A action, which was only briefly slowed by the pandemic, Scott Slater, Fidelity institutional vice president of practice management and consulting, says we are all witnessing a dramatic and accelerating change in the independent wealth management space. 

“Not only was November the largest single month of activity as measured by AUM, but AUM volume in the last six months nearly eclipsed all of 2019, which itself was a record-setting year,” Slater says. “We’re seeing a significant amount of large deals, as well as new investors continually entering the space. 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.”

New data shared by PwC backs up this conclusion, showing that consolidation has continued in adjacent financial services sectors as well, including among asset managers. According to a report titled “AWM Deals Insights: 2021 Outlook,” the past 12 months have marked a banner period for asset and wealth management (AWM) deals. 

“Deal volume hit a high-water mark relative to the past few years,” the report says. “Similarly, the value of announced deals hit $53.4 billion, a new record. Morgan Stanley was behind two of the largest deals this year—the $13.1 billion acquisition of E*TRADE Financial Corp. and a proposed $6.8 billion acquisition of investment manager Eaton Vance. But smaller-scale consolidation across the industry was also robust. In all, we saw 220 announced deals during the period, up slightly from the 212 announced deals in 2019.”

Though it echoes many of the points made by Slater and Fidelity, the PwC report is less certain about what comes next for M&A activity. PwC says it may well be that the types of deals that have dominated the past couple years could slow.

“We expect the strong pace of deal activity to continue into 2021,” the report confirms. “However, the impetus for transactions has already begun to shift. Many deals in 2020 were led by more traditional drivers of cost cutting and economies of scale, as firms looked for ways to cope with fee compression. Looking forward, we see more desire by some to expand capabilities, products and distribution. This, along with middle-market companies that may struggle to differentiate themselves in a crowded market, could be a prelude to future AWM deal-making.”

Still, the report says the stars remain aligned for healthy activity for RIAs and wealth managers.

“We also expect continued consolidation in the registered investment adviser sector, as valuation multiples have risen higher in the wake of a number of recent deals,” the report explains. “Over the past 12 months (through November 15), the wealth management sub-sector has seen 119 announced deals, up 21% over the comparable prior period. Additionally, roll-up players (e.g. Focus Financial, Hightower) have been joined by a new set of private equity-backed players which have raised significant funds within the last 12 months and are pursuing the same roll-up strategy (Creative Planning, CAPTRUST, AllWorth Financial). New non-U.S. players, such as Canada-based CI Financial, are jumping into the fray too.”