Panel: The ‘Golden Age’ of Advisory M&A Has Many Years Ahead

Retirement experts participating in a PLANADVISER webinar say client demand for customization and advice will keep driving M&A among financial advisories.

The “golden age” of retirement industry mergers and acquisitions looks set to continue well into the future, with advisories determined to offer the full suite of financial wellness and management, according to a PLANADVISER’s February 16 Practice Progress webinar.

As plan sponsors and participants demand more holistic financial options and personalization, the retirement industry is moving toward greater scale and capability, according to experts managing retirement practices who have been active in M&A.

Jim O’Shaughnessy, president of retirement and private wealth at Hub International Retirement and Wealth Management, recalled being on the early stage of the M&A push when his practice joined Hub in 2018. “I’d say we were at the front end of what has got to be one of the greatest golden ages of M&A, at least in the small mid-market retirement advisory space,” O’Shaughnessy said.

When Sheridan Road Financial joined Hub, O’Shaughnessy said the practice had $15 billion in assets under management, 250 retirement plan clients and $850 million in wealth business. The group was motivated to sell, in part, due to Department of Labor fiduciary regulations it felt was driving the industry toward needing capabilities in financial advice and management. More recently, Hub has been shifting from the retirement advisory space toward wealth management acquisitions, O’Shaughnessy said.

“We’re definitely in the latter stages of the acquisition space for small mid-market retirement practices, but there is a lot of runway on the wealth side,” he said. “This is both from retirement aggregators looking to go into wealth, but also because there are so many more wealth practices out there looking into retirement.”

Health & Wealth

Retirement and financial advisory CAPTRUST has been in the acquisition game since 2006, bringing on more than 60 firms in that time, according to Jennifer Doss, a senior director and defined contribution practice leader. That acquisition interest is not letting up, she said, in part because smaller advisories are struggling to meet the need for personalized financial wellness and guidance to participants, particularly for larger plans.

“You cannot do it all yourself,” Doss said. “You’re either going to have to hire people, or you’re going to have to stop promoting or selling that [personalized] benefit, and I think there’s a big demand for that benefit out there right now, so those two things are in conflict.”

Doss said the second area of scale is technology and content, which can be a big commitment to build out and provide. It can cost a lot of money for a smaller organization to build out proprietary managed account solutions, digital interaction advice tools, webinars and customer participant communications and campaigns, she said.

“Can you do all that and satisfy the needs of what retirement plan sponsors are really asking for today?” she asked. “Because it’s not going to be good enough going forward if you’re just offering enrollment meetings.”

Craig Reid, president and national practice leader of retirement and wealth at the Marsh McLennan Agency, also said customization and personalization are driving the convergence of retirement and wealth capabilities.

“You’re going to see larger deal volumes on the smaller level,” Reid said, citing a Bain & Co. consulting report. “A lot of those are going to be scope-type M&A, which is more about that specialization and acquiring for scale and speed the things that you don’t have today … but would be quicker to get to market if you just partner with a good firm.”

O’Shaughnessy sees M&A pushing toward more personalization for participants in the small-to-mid-market, which will be a positive for the industry.

“We offer more today in terms of capabilities, both at the plan level of the industry in terms of an advisory and collectively; we are building out an ecosystem of new services that the participants can take advantage of together,” he said. “I think we’re in the very early stages of a multi-year buildout of what those capabilities will look like over time.”

Building Culture

At advisory Oswald Financial Inc., there is not as much of a focus on aggregating smaller firms, but they are active in merging and combining teams to provide the full range of financial services, said Deena Rini, senior vice president and retirement plan services practice leader.

Rini said for a partnership to work, it cannot just be about teams providing different services, but integrating them to work toward the same goal.

“When you talk about adding new team members and the training and development aspect of M&A, it becomes less about talent and more about culture and that seamless integration of your processes,” Rini said.

To create a clear and successful culture, Oswald starts onboarding by emphasizing the key goals of meeting client needs in areas such as financial education and wealth, Rini said. A second priority is leadership training and guidance, and a third is making sure there is a foundation that helps everyone go in the same direction, she said.

The panelists agreed that there is interest by recordkeepers to also offer participants financial wellness and wealth management. Overall, though, they see the industry moving toward a collaborative space out of the necessity of meeting client needs.

“It’s about accessibility and simplicity and getting our participants more educated so they can make these decisions themselves,” said Rini. “It’s not an argument of who owns the participant—they own themselves. We are equipping them with the education to make these decisions, and it’s the holistic conversation of health, wealth and retirement.”

Reid, of Marsh McLennan, said both recordkeepers and benefit providers need to partner and communicate with advisory firms to be coordinated and aligned to best help participants across the full range of their financial lives.

“It’s about making sure that you have a coordinated communication effort with your benefits team or the benefits team that serves your clients,” Reid said. “You need to make sure that you are sending out concise messaging and working together, instead of everyone working in their own silos.”