National firms driving RIA deals

In 2012, number of deals dropped but size increased

Jan 28, 2013 @ 2:05 pm

By Andrew Osterland

National firms participated in more than half of mergers and acquisitions in the registered investment advisory industry last year, according to data compiled by Schwab Advisor Services, which also found that while the number of deals in 2012 declined from 2011, deal sizes increased dramatically.

Of the 45 deals involving RIAs in 2012, aggregating firms — or RIA partnerships, as they prefer to be called — accounted for 25 of them.

The three most prominent national firms are HighTower Advisors LLC, Focus Financial Partners LLC and United Capital Financial Advisers LLC, which acquired Paragon Investment Management this month.

“National acquiring firms are proving to be a good overall alternative for the growth of the industry,” Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, said in a statement. “They are attractive to both advisers that are looking to join the move to independence, or RIAs that are seeking to expand their footprint or execute a succession strategy.”

Twelve more deals were executed in 2011, but the average firm size, based on assets under management, increased dramatically last year to $1.3 billion, from $798 million in 2011. The total assets under management held by firms involved in deals last year was $58.8 billion, up from $43.9 billion in 2011.

Shirl Penney, chief executive of Dynasty Financial Partners LLC, which added 12 adviser teams to its RIA service platform last year, said national firms have the resources and people to execute transactions.

“The larger firms have people dedicated to getting deals done, while RIAs are focused on serving their clients,” Mr. Penney said. Dynasty, which provides a wide range of services to RIA firms, does not invest in those firms but does help finance deals between them.

Mr. Penney said he thinks Schwab missed a substantial number of mergers between smaller firms that might not have been reported in the media. He also expects that factors such as the aging adviser population, the need for succession planning and the increasing complexity of running an advisory practice, will drive more deals, with larger firms continuing to have an advantage over their smaller counterparts.

“Scale and size matter in our industry,” Mr. Penney said. “There's a growing supply of financial advisers looking for a succession plan and there are still plenty of advisers going independent who don't want to run their own business. These are good trends for our industry.”

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