RIA acquisitions down in 2012

Feb 3, 2013 @ 12:01 am

By Andrew Osterland

Mergers-and-acquisitions activity by RIA firms last year was significantly less than some in the industry expected.

Schwab Advisor Services' annual M&A survey, released last week, showed that while the average size of RIA deals increased substantially in 2012 in terms of the acquired firm's level of assets under management, the number of transactions fell to just 45 last year, from 57 in 2011.

“It was a lot softer year than I anticipated,” said David DeVoe, chief executive of investment bank DeVoe & Co.

Mr. DeVoe, formerly with Schwab, launched his business 14 months ago.

“We should be seeing a couple of hundred transactions a year,” he said.

More deals would certainly help Mr. DeVoe's fledgling business, but it also would solve some continuity issues for aging financial advisers without a succession plan.

“I can't help thinking we're headed for a situation where a lot of RIAs will be looking for buyers at the same time,” he said. “That could affect valuations.”

The 45 deals involving firms with more than $100 million in assets under management that Schwab tracked last year were 12 fewer than the number in 2011, but the size of the average firm acquired had AUM of $1.3 billion, versus $798 million in 2011. Total assets involved in the deals were $58.8 billion, compared with $43.9 billion in 2011.

Three of the largest deals — involving Edelman Financial Services LLC ($17 billion in assets under management), Veritable LP ($10 billion) and Luminous Capital Holdings LLC ($5.5 billion) — accounted for a big chunk of that total, though Schwab doesn't disclose details of the deals that it tracks.

The biggest players in the market were the national firms, the most prominent being Focus Financial Partners LLC, HighTower Advisors LLC and United Capital Financial Advisers LLC. They participated in 25 of the 45 transactions.

RIA firms initiated nine of the deals, while banks and other buyers accounted for 11.


Two weeks ago, United Capital made its first acquisition of the year, buying RIA Paragon Investment Management Inc., which manages more than $1 billion in assets.

Although United chief executive Joe Duran said at the time that his firm would focus more on organic growth, aggregator firms as a group are likely to remain active buyers in the market.

“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.”

National firms have a distinct advantage over RIA firms in the deal market, said Shirl Penney, chief executive of Dynasty Financial Partners LLC, which added 12 adviser teams to its RIA service platform last year.

“The larger firms have people dedicated to getting deals done, while RIAs are focused on serving their clients,” he said.

Dynasty, which provides a wide range of services to registered investment advisers, doesn't invest in firms but does help finance deals between them.

Mr. Penney expects that factors such as the aging adviser population, the lack of succession plans and the increasing complexity of running an advisory practice will drive more deals — with larger firms continuing to have an advantage.

“Scale matters in our industry,” he 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,” Mr. Penney said.

However, individual RIAs, most of whom don't have a succession plan for their business, will have to drive the broader consolidation of the industry.

“RIAs love what they do, but more often than not, they don't have the internal team and structure to continue to grow and prosper,” said John Burns, co-chief executive of Exencial Wealth Advisors, an RIA. “It's a tremendous challenge, and most firms are behind the curve in dealing with it.”


Mergers could be the solution for many.

Last week, Exencial acquired Investors Asset Management Inc., an RIA with $190 million in assets under management.

Mr. Burns said that the transaction provided Investors Asset Management with much-needed continuity and added scale for Exencial, which now manages just under $1 billion in assets.

It is the second deal that he has orchestrated, and he plans to do more.

“The industry is fragmented, and our vision is to be a strong player in the Southwest,” Mr. Burns said. “There are a lot more opportunities for us in this area.”

aosterland@investmentnews.com Twitter: @aoreport


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