RIA Acquisitions Are At Record Highs - Here's Why

The perfect storm of Registered Investment Advisor (RIA) mergers and acquisitions (M&A) is only growing stronger. According to a new study by Fidelity Investments, 2015 saw 89 RIA M&A deals, while last year saw a whopping 233.

Over the same decade, the value of acquired assets grew from $130 billion to almost $670 billion. This growth happened despite the spike in interest rates over that time.

The reasons are clear: advisory owners are growing older and looking for an exit strategy that lets them cash out and retire.

What is changing, according to Fidelity, is how buyers are acting, and who they’re buying. Acquirers are becoming much more active in setting up a growth path for the RIAs they buy and merge. RIAs with more than $1 billion in client assets are beginning to get bought up too and lots of new buyers are making moves recently.

But it’s the serial acquirers that continue to lead the pack. Focus Financial, for example, closed 21 RIA M&A deals last year across its affiliates, while Wealth Enhancement Group bought 12 and Waverly advisors 10.

Clearly, there’s a lot of appetite out there for buying and consolidating the RIA space.

Appetite is so high, in fact, that last October was the strongest ever month for RIA M&A, Fidelity reports. This is down to deals taking about seven to nine months to close. So targets that get identified at the beginning of a year will end up acquired toward the end of that year.

Second, the presidential campaign included ideas about changing the tax treatment of unrealized capital gains, which may have pushed companies to close their deals before the New Year.

With that now looking less likely and interest rates down, it seems this RIA M&A wave isn’t going away anytime soon. Small and large RIAs should take note, decide if they want to join in, and if so, work to increase transparency, reduce revenue risks and develop clear plans for how to support and grow revenue streams, including through reaching new, younger clients.

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