A recent slowdown in the pace of reps leaving brokerage firms is seen as largely responsible for the sudden dip in merger and acquisition activity in the advisory space, according to the latest report from DeVoe & Co.
The question now, is whether a wirehouse trend away from broker protocol will spark a fresh surge in breakaway activity.
The report on third-quarter M&A activity shows just 29 deals during the quarter, marking it the lowest level since the third quarter of 2014, which saw 28 deals completed.
The second quarter of this year saw 40 deals, and the first quarter saw 45 deals.
The M&A research, which excludes reps leaving to set up their own firm, only counts deals where "equity is changing hands," according to David DeVoe, managing partner at the RIA consulting firm.
The research counts both the acquisition of breakaway brokers and registered investment advisers with at least $100 million under management.
The 19 RIA deals in the third quarter are down slightly from 23 during each of the past two quarters, but remain in line with historical averages, Mr. DeVoe said.
But the 10 breakaway-rep acquisitions during the quarter continued a downward slide from 17 last quarter, 22 in the first quarter of this year, and 23 during the fourth quarter of last year.
The drop off, he explained, is the other side of the surge in deals related to the Department of Labor's fiduciary rule, which was released in April 2016.
In the second quarter of last year, there were just 12 breakaway acquisitions, followed by 17 in the third quarter, leading up to the fourth-quarter peak.
"With the threat of all the new red tape associated with DOL rule, a lot of advisers decided to leave the firms they were at," Mr. DeVoe said. "The breakaway activity tends to be more event driven, so events drive spikes in activity."
He cited a similar surge and decline in deals in the period between the second quarter of 2014 and the first quarter of 2016, as forgivable loans established in 2008 and 2009 were expiring.
In terms of the potential impact of wirehouses ending broker protocol policies, Mr. DeVoe agreed that it could drive a short-term spike in breakaway acquisitions, but he believes it will reduce breakaway activity over the long term.
"Depending on how quickly other wirehouses follow suit, it could have a dampening effect on brokerage reps joining RIAs," he said. "But you might see a surge as more firms debate the question of protocol."
Mindy Diamond, president of the recruiting firm Diamond Consultants, believes the potential for more firms abandoning protocol "absolutely will drive breakaway movement."
The protocol trend "shows firms are looking to further marginalize reps and take away more control," she added.
Industry recruiter Danny Sarch agreed that the protocol issue will fuel breakaway activity, including established reps being acquired by established RIAs.
"The idea of being captured will bug people, and I think firms will lower compensation if they believe you are more reluctant to leave," he added. "The breakaway trend will continue because the wirehouses will start running the business in a way that will anger reps even more."