PCIA’s Take on Retirement Adviser Industry M&A, Wealth Trends

Emerging market realities continue to strengthen the ties between retirement plan advisory services and individual wealth management, as evidenced by recent M&A activity.

Prime Capital Investment Advisors (PCIA) recently announced its acquisition of the assets of Sphere Wealth Management, an independent wealth management shop in Fayetteville, Arkansas.

The transaction added more than 200 families and three new advisers to PCIA’s business, which, according to chief executive officer Glenn Spencer, remains equally focused on the retirement planning and wealth management segments. In fact, while discussing the transaction and the broader industry merger and acquisition (M&A) landscape, Spencer suggested this dual focus is probably his firm’s greatest advantage moving forward.

For context, M&A activity remains at historic levels among retirement plan advisers, wealth managers, asset managers and recordkeepers. Notably, the first quarter of 2021 set yet another transaction volume record for registered investment advisers (RIAs), according to data provided by Echelon Partners. PCIA played its part in the first quarter’s deals with the acquisition of the retirement advisory practice of the First National Bank of Omaha.

“The pace of M&A has always had a strong influence on our firm,” Spencer says. “As you may recall, we became PCIA in 2017 through an acquisition process, when we bought the non-insurance assets and operations of another firm. Since then, we have sought to grow in a way that has maintained the balance between retirement plan advice and wealth management.”

Spencer says the strategy is built on a theme of creating balanced and symbiotic revenue streams that reflect the shifting demographics of today’s middle class and mass-affluent investors.

“I have been working in this space for over 30 years now and so we can learn from that experience,” Spencer says. “When we look back, we know the 401(k) was legislated in the late 1970s, but the 401(k) infrastructure was really created in the ’80s, and then the accounts became widespread in 1990s. Eventually, the contributions became really significant in the 2000s. Today, the next question is about distribution and management of the significant wealth that has been generated in the retirement plans. I’ve seen stats that show 75% of all assets in 401(k) plans are owned by people who are at least 50.”

In Spencer’s view, this demographic reality will remain a primary driver of a growing demand to link workplace retirement planning with overall financial wellness and wealth planning services.

“The scope of what we are expected to do has broadened,” Spence suggests. “Our retirement plan participants have more individualized needs, hence our focus on managed accounts and broader wealth management capabilities. We are already the trusted adviser in the workplace, and we have the financial planning and wellness services, so it’s a natural fit for our clients to work with us across retirement and wealth.”

Other firms engaged in recent RIA M&A action have expressed similar motivations, including CAPTRUST. Its leaders say that serving retirement plans and private individuals does not mean a firm will be aggressively soliciting rollovers or engaging in other potentially problematic cross-selling behaviors barred in the workplace by the Employee Retirement Income Security Act (ERISA). Instead, they say 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.

Similar to CAPTRUST’s take, Spencer says the elevated M&A activity will undoubtedly continue for years to come. In addition to the demographic trends, there are internal pressures causing advisory firms to reassess their operations.

“If you look back just 20 years or so, you still saw all the advisers working at the big institutional wirehouses,” Spencer observes. “Over the years, many broke away, such that there are now some 17,000 independent wealth management firms in North America. The average firm out there today is a small business with fewer than 10 employees. In this environment, it is becoming really hard for those small businesses to match efficiency and scale of the consolidators. We can afford to invest in the resources that clients are demanding. The consolidator’s value proposition for the independent advisers is that we will take on all of the administration and infrastructure work, and we’ll do it better and cheaper. We will let you focus on dealing with your clients and winning new clients.”

Spencer expects the same names will continue to dominate the M&A activity that is of most interest to the subset of advisers focused on serving retirement plans in a fiduciary capacity—including but not limited to Hub International, CAPTRUST, Marsh & McLennan Agency, and, of course, PCIA.

“The retirement plan advisers are going to be most attracted to firms that are independent but with scale,” he suggests.