Data & Research April 22, 2024

Wealth Management Sector and M&A Robust in 2024

Echelon Partners reports 90 transactions in Q1, while a separate report from data firm Technavio forecasts the global wealth market to grow 7% annually to 2027.

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Wealth management continues to be a hot ticket in finance, according to two recent reports.

On Monday, Echelon Partners gave its first impression of wealth management-related mergers and acquisitions, counting 90 transactions in Q1, a 20% increase in deal count compared to the same period last year, and the second most active first quarter on record since it began tracking in 2017.

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“Strategic acquirers continue to play a dominant role in the wealth management M&A landscape, accounting for an impressive 85.6% of transactions in 1Q24,” Echelon Managing Partner and CEO Daniel Seivert and team wrote in the report. “These players (and their financial backers) are deploying substantial capital towards M&A, underscoring the industry’s ongoing focus on consolidation and realizing synergies.”

Echelon, a boutique investment bank based in Los Angeles, noted that, as deals usually take nine months to complete, the activity likely reflects deals from 2023 extending into 2024. The deals represented $570 billion in total assets transacted.

Registered investment advisors continued to dominate the buyer population in Echelon’s list, but the deal pool also included private equity firms, broker dealers, asset managers and insurance companies. Many of the retirement plan advisement and wealth management aggregators in the space in recent years have been a similar combination of private equity-backed RIAs and insurance brokers.

Most of the deals (77) were made by strategic acquirers looking to grow their firms in scale and capability, according to Echelon. Just 13 deals were made by financial acquirers looking for returns rather than business “synergies.”

In Q1, some of the biggest retirement plan related deals came via private equity. That included Lee Equity Partners LLC taking a majority stake in PCS Retirement LLC, a retirement plan recordkeeper, and Lightyear Capital LLC making a strategic investment in Prime Pensions LLC, a retirement plan compliance and administrative services firm. Meanwhile, Mariner Wealth Advisors added retirement plan advisement capabilities with the acquisition of AndCo Consulting, with a reported $104 billion in assets under advisement.

The largest wealth deal in the quarter was made by LPL Financial when it acquired Atria Wealth Solutions’ $100 billion in assets.

Based on this initial flow, the consultancy also forecasts 330 total deals by the end of 2024, up from 321 deals announced in 2023, and at an average asset size of $1.8 billion; that prediction includes a robust Q2.

“Historically, the second quarter tends to exhibit lower deal volume,” the firm wrote. “However, buoyed by the substantial number of deals already in motion, ECHELON foresees a 2Q24 that may rival the performance witnessed in 1Q24.”

Global Market

In a separate report released Thursday, market research firm Technavio noted robust growth in the wealth management sector globally as driven in large part by demand from North America.

Globally, the firm puts the current wealth management market at $635.2 billion, then forecasts a compound annual growth rate of 7.02% from 2022 to 2027, or an increase of $325.6 billion by 2027.

In the report, the researchers cited drivers of that growth to come from a rising number of high-net-worth individuals globally, the introduction of increasingly diverse wealth management services by vendors, and a rising demand for alternative investments along with support from regulators.

The firm did, however, note some headwinds to that growth, which included: pressure on pricing structure of wealth management firms, the growth of financial technology companies as competitors and risks of transactions not working out as intended.

Finally, the firm listed trends to watch in the space including technological advancements in the market, a growing focus on sustainable investing, and a change in demographics creating wealth management opportunities.  

The report considered the wealth management market globally by region, including North America, South America, Europe, Asia Pacific and Middle East and Africa; North America held the largest share of the global market in 2022, according to Technavio, which is based in London.

“The wealth management industry in North America, led by the US and Canada, continues to dominate the global market due to developed economies and high-income levels,” the researchers wrote. “The Asia Pacific market, fueled by rapid urbanization, is a significant growth area, with cyber security technology, transparent pricing tactics, and portfolio management capabilities essential [for success.]”

While technology is playing an increasing role in financial services, including increased use of artificial intelligence, “human advisory continues to add value through financial counselling and wealth management expertise,” the firm wrote. “The future of the wealth management Industry lies in the balance between human and digital solutions.
Data & Research April 22, 2024

‘Retirement Fluency’ Not Evolving

Americans’ understanding of retirement-related topics has remained relatively flat since 2017, according to an annual study conducted by TIAA and financial literacy center GFLEC.

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Adult Americans’ understanding of retirement-related topics has not evolved despite advancements in technology and access to information, according to the 2024 TIAA Institute and Global Financial Literacy Excellence Center Personal Finance Index.

As poor financial decisions often correlate with low levels of financial literacy, the findings are a cause for concern that U.S. adults consistently struggle to understand retirement-related topics, according to the findings.

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On average, U.S. adults only correctly answered 48% of the 28 financial literacy questions in the survey, a figure that has hovered around the 50% mark since the inaugural research in 2017.

Beyond teaching more financial literacy education in primary and secondary schools, authors of the report argued that policymakers should design initiatives and programs specifically targeted to Black and Hispanic workers, who display much lower levels of financial literacy.

The lack of “retirement fluency” is also a signal to employers that more education is needed on topics like Medicare, longevity and retirement income. Authors of the report included Paul Yakoboski at the TIAA Institute, Annamaria Lusardi at Stanford University and GFLEC and Andrea Sticha at Stanford Graduate School of Business and GFLEC.

TIAA and GFLEC noted that financial literacy significantly varied based on the respondents’ sociodemographic characteristics.

For example, financial literacy among women has consistently lagged behind that of men. That continues this year as there was a 10-point gender gap in the percentage of index questions correctly answered in 2024. 

Black and Hispanic Americans also scored lower than Asian and white Americans, and Gen Z respondents only correctly answered 37% of the questions.

Five questions in the 2024 P-Fin Index survey were specifically used to gauge basic “retirement fluency,” or knowledge that promotes financial well-being in retirement, focused on the following five topics: Social Security benefits, Medicare coverage of health care expenses, employment-based retirement savings, ensuring lifetime income and life expectancy in retirement.

Respondents struggled most with questions about Medicare coverage and life expectancy, as only 30% of adults had a general understanding of Medicare’s average coverage rate of health care expenses in retirement, and only 32% knew how long people tend to live upon reaching retirement age.

On the other hand, more than half of all respondents (53%) knew that annuities provide lifetime income.

As a whole, TIAA and GFLEC found that retirement fluency was low among U.S. adults. On average, respondents correctly answered two questions out of the five. Only 4% of respondents were able to answer all five correctly.

Retirement fluency was found to be linked to retirement income security, as 26% of those who correctly answered four or five of the retirement fluency questions said they are “very confident” they will have enough money to live comfortably throughout retirement, while only 7% of those groups are not at all confident.

This survey was conducted online in January of this year, sampling 3,876 individuals, ages 18 and older.

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