RIA consolidation hits new high in first quarter

Smaller firms are becoming bigger targets of banks, consolidators and larger RIAs

May 9, 2017 @ 5:00 am

By Jeff Benjamin

The registered investment adviser space rolled into 2017 by consolidating at a record clip, according to the latest report from DeVoe & Co.

The first quarter report, released Tuesday morning, counts a record 44 deals during the first three months of the year, versus 36 deals in the fourth quarter of 2016, and eclipses a previous high of 39 deals in the first quarter of 2015.

"Advisers are selling and merging to gain the benefits of scale in an increasingly competitive marketplace," said David DeVoe, managing partner at the consulting firm conducting the M&A research.

The strong pace of first-quarter deals potentially puts 2017 on track for a record year, because the deal count is already nearly a third of the way to reaching the 145 deals recorded last year.

In terms of types of deals, the pendulum so far this year has swung back toward more RIAs ceding some control over their businesses to be part of a larger organization.

RIA deals and breakaway broker deals were split evenly in the first quarter. In 2016, breakaway broker deals made up 55% of all deals, while in 2015, RIA deals dominated at 58% of all deals.

According to Mr. DeVoe, much of the spike in RIA deals can be attributed to smaller firms needing support to keep pace with fast-changing technological and regulatory issues.

The data show that half of the RIA deals in the first quarter involved firms with less than $250 million under advisement. That's up from 29% for all last year, and 24% in 2015.

The trend of more deals involving smaller RIAs effectively pulled down the size of the average RIA deal during the quarter to $588 million under advisement.

Last year, by comparison, the average RIA seller had $1.06 billion under advisement. And in 2015, the average RIA seller had $926 million under advisement.

In terms of the buyers, consolidator firms continue to dominate, representing 57% of all RIA buyers during the quarter, but banks also took a bigger bite, representing 16%.

In 2016, consolidators were buyers in 44% of the deals and banks were the buyers in just 3% of the deals.

RIAs, as a group, were less active during the quarter, representing the buyer in 18% of the deals, which is down from 39% in 2016.

Mr. DeVoe sees patterns in place for increased consolidation in the RIA space.

Among the "five waves" of RIA consolidation activity, he said banks have recently​ become more significant players, having shed some of the baggage of the 2008 financial crisis.

The consolidator firms themselves have consolidated since 2008, but now represent "a dominant acquiring force in today's market," Mr. DeVoe said.

RIA firms have followed the lead of consolidators in recognizing the power of growth through acquisitions, he added.

"RIAs have arm-wrestled with consolidators on a quarterly and annual basis for a leading market share," Mr. DeVoe said.

Private equity has recently emerged as a direct buyer after years of simply backing the deals of consolidators.

"During the last few years, private equity has cut out the middleman," Mr. DeVoe said.

Then there is the world of sub-acquisitions, which involves RIA firms that are already part of a consolidator's network becoming buyers.

"Parent companies are providing their affiliates with the capital and M&A expertise to become acquirers themselves," Mr. DeVoe said.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video

Events

What's the top issue on advisers minds?

Laura Pierson from Carson Group discusses how the old topic of 'Human Capital' is hot again because of millennials.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print