RIA sellers might be rushing in ahead of market turmoil

Latest research from DeVoe & Co. shows a first-quarter spike in activity

Apr 23, 2018 @ 5:00 am

By Jeff Benjamin

The first quarter of 2018 saw a record level of consolidation activity in the financial advisory space, according to the latest report from DeVoe & Co.

The 47 registered investment adviser transactions during the first three months of the year represent a 42% increase over the 33 deals completed in the final quarter of last year, according to the investment bank's research.

The busy start to the year followed two quarters described as "weak" by managing partner David DeVoe.

Last year saw 152 deals completed, marking a fourth consecutive year of record highs. But activity slowed in the second half, with just 65 deals completed.

DeVoe separates financial advisory deals into breakaway brokers leaving wirehouses and established RIAs being acquired. The 30 established RIA acquisitions in the first three months of this year set a record for a single quarter. It was double the number of such deals completed in final quarter of last year and eclipsed the previous high of 26 such deals during the second quarter of 2016.

The average assets under management of established RIA sellers during the quarter was $858 million, down from $905 million in the previous quarter.

The number of breakaway brokers joining RIAs during the quarter was in line with historical averages, but the 17 moves was one less than the 18 during final quarter of last year. In 2017, there were a total of 67 breakaway moves.

The average assets under management of breakaways so far this year is $335 million, up 16% from last year's average of $288 million.

In terms of what to expect for the rest of the year, Mr. DeVoe said the recent market volatility would ordinarily be the kind of thing that would dampen M&A activity, but this time could be different.

"Part of the reason deals slow after periods of volatility is that advisers are more focused on client hand-holding, and M&A is something you do after your day job," he said. "But we're nine years into a bull market, and many advisers could be wondering if and when there might be a correction."

The burning memories of the market carnage of 2008, he added, could have some advisers prepping to sell before things get ugly.

"They know if there's a repeat of 2008, valuations will be compressed, potentially creating a two-year window where they will be less likely to sell firm," Mr. DeVoe said.

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