In Practice May 10, 2017

RIA M&As Hit Record in First Quarter

There were 44 transactions in the first quarter, up 29% from 34 in the first quarter of 2016.
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Merger and acquisition (M&A) activity among registered investment advisers (RIAs) hit a record in the first quarter, according to investment banking firm DeVoe & Company. There were 44 M&A deals among RIAs in the first quarter, up 29% from 34 in the first quarter of 2016.

“The first quarter of 2017 was the most active quarter ever of mergers and acquisitions in the RIA industry,” says David DeVoe, managing director at DeVoe & Company, which has been tracking RIA M&As since 2013. “Advisers are selling and merging to gain the benefits of scale in an increasingly competitive marketplace.”

DeVoe also says that RIAs are looking for the benefits of being part of larger organizations, most notably operational support for such things as compliance and technology. This is borne out by the fact that half of the deals in the first quarter were among smaller RIAs, firms with between $100 million and $250 million in assets under advisement (AUA). Previously, that had averaged 30%.

These deals lowered the average AUA of the transactions to $588 million, down significantly from an average of $1.06 billion in 2016.

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Banks stepped up to the plate to acquire RIAs in the first quarter. Typically, they comprise only 2% to 3% of these deals, but they represented 16% of the acquirers in the first quarter. DeVoe says they probably are interested in RIAs’ relationships with high-net-worth clients.

DeVoe & Company’s full report can be downloaded here.

Compliance May 10, 2017

Another Health System Settles Church Plan Challenge

The lawsuit challenges the status of the pension plans of Franciscan Missionaries of Our Lady Health System.
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A preliminary settlement has been reached in a case challenging the “church plan” status of pension plans for Franciscan Missionaries of Our Lady Health System.

The plaintiff brought suit challenging the status of the plans and their exemption from the Employee Retirement Income Security Act (ERISA) and its minimum funding requirements.

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According to the settlement agreement, Franciscan will contribute $125 million to the plans in the next five years, pay $450 to each of the more than 2,000 participants of the plans who accepted a lump-sum buyout of their balance in 2016, and guarantee participants will be paid the pension benefits they were promised for the next 15 years.

Specifically, Franciscan will contribute $35 million in each of the next three years and $10 million in the following two years.

Many cases have been filed in the past year challenging the church plan status of pensions for several health systems. While some have been settled, others have received either a favorable or unfavorable decision by the courts. The Supreme Court recently heard oral arguments focused on the definition of a church plan set forth in Section 3(33) of ERISA and whether deference should be given to Internal Revenue Service (IRS) letters granting church plan status to entities’ plans.

 

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