2019—the Year of Mergers and Acquisitions

Wells Fargo, PSC, Aspire, Charles Schwab, Hub International, CAPTRUST and many other firms have been involved in significant merger and acquisition activity this year.

Paul Sommerstad, a partner at Cerity Partners who joined the firm through its acquisition of Blue Prairie Group back in April, says accelerated merger and acquisition (M&A) activity was an important retirement plan industry trend in 2019.

“To put it simply, consolidation is a fact of where we are at in the economic cycle,” Sommerstad says. “M&A activity is very prevalent both within our industry and among the client base we serve.”

At Cerity Partners, in addition to its own M&A activity, the firm has helped multiple health care clients join larger networks in 2019.

“We have clients on both ends of M&A activity, as many advisory firms probably do. We have clients that are being acquired and we have clients that are making acquisitions,” Sommerstad explains. “I’ll be on the phone with a client of ours today that has a 1/1/2020 plan acquisition, and they have another one already lined up for 1/1/2021.”

In all industries, mergers and acquisitions are near all-time highs, Sommerstad adds.

“That’s part of why you hear this figure that there are only about half as many publically traded stocks available today versus several decades ago,” he says. “On the flip side, the number of private equity firms has ballooned from a few hundred to 8,000-plus in that time period. As advisers, it’s in our wheelhouse to help with these M&A processes. Our skillset can be very valuable, especially on the defined benefit [DB] side of things. A poorly funded DB plan that is not understood by the acquiring entity can turn into a real headache down the line.”

M&A Among Advisers  

While advisory firms’ clients are facing their own consolidation pressures, the registered investment adviser (RIA) and independent broker/dealer industries are in the eye of the M&A storm. According to Fidelity’s latest Wealth Management M&A Transaction Report, the pressure for financial services firms to scale and the pervasiveness of prepared buyers who hold significant capital in a low interest rate environment continues to fuel record transaction activity.

“For RIAs, this tension is intensified by rising valuations and a lack of succession planning in some firms,” the report says. “Ten RIA transactions representing $20 billion in AUM were announced in November, up slightly in AUM from the ten transactions totaling $17.0B in November 2018.”

Through the first 11 months of 2019, Fidelity reports, there have been more than 115 registered investment adviser (RIA) transactions, up 36% over the same time period in 2018 and representing $146 billion in AUM, which is up 34% over 2018. Year-to-date, there have been 11 independent broker/dealer transactions, representing $628.7 billion in assets, up significantly from 2018, which had eight transactions representing $453 billion.

Regular readers of PLANADVISER will recall several different buying sprees executed during 2019, with perhaps the most prevalent coming on the part of Hub International. The firm started its acquisition activity back in January, when it announced the acquisition of Sheridan Road Financial. The buying continued in September, when Hub announced in rapid succession six acquisitions of firms that were part of Global Retirement Partners (GRP). This round of acquisitions brought on board  EPIC Retirement ServicesStoneStreetWashington FinancialPerennial Pension & WealthWhartonHill and Inter-Mountain Retirement Partners (MRP). Just last month, the global insurance firm continued to grow its stable of retirement plan specialists with the addition of two New York-based advisers.

Also in November, Advisor Group and Ladenburg Thalmann announced a plan to merge, a move that will bring together more than 11,000 financial advisers and $450 billion in client assets.

Earlier in the year, CAPTRUST grabbed headlines for its own serial acquisition activity based on the premise of bringing together retirement planning and wealth management expertise under the same roof.

M&A Among Recordkeepers and Asset Managers

In addition to RIA consolidation, 2019 also delivered several significant acquisitions among recordkeepers and asset managers.

In April, Principal Financial Group announced a definitive agreement with Wells Fargo & Company to acquire its Institutional Retirement & Trust business, a deal which was finalized in the third quarter. Through the acquisition, Principal effectively doubled the size of its U.S. retirement business, while bringing on institutional trust and custody offerings for the non-retirement market and expanding its discretionary asset management footprint.

Last month, the Charles Schwab Corporation and TD Ameritrade Holding Corporation announced their entrance into a definitive agreement for Schwab to acquire TD Ameritrade in an all-stock transaction. According to the firms’ leadership, the transaction will create significant strategic benefits for the combined organization and is expected to deliver attractive returns for the owners of both companies.

Specifically, the acquisition will add to Schwab approximately 12 million client accounts, $1.3 trillion in client assets, and approximately $5 billion in annual revenue. This added scale is expected to result in lower operating expenses as a percentage of client assets and to help fund enhanced client experience capabilities in the future. The resulting combined firm is expected to serve 24 million client accounts with more than $5 trillion in client assets.

In August, it was revealed that PCS and Aspire, both founded nearly two decades ago with the common goal of providing specialized services to investment fiduciaries, would join together to achieve the benefits of scale in an increasingly competitive marketplace. The combined entity will be a 300-person organization focused on providing conflict-free recordkeeping services to 16,000 plans and 750,000 eligible participants, representing more than $23 billion in assets under administration. Together, PCS and Aspire will serve thousands of financial advisers, strategists and third-party administrators (TPAs) across the United States.