Financial adviser technology M&A activity totaled nearly $4 billion in 2015, led by SS&C's blockbuster acquisition of Advent and marked by smaller deals for services ranging from financial planning software to robo-advising.
Next year, advisers should expect to see dealmakers put more of a spotlight on digital retirement advice and data aggregation, industry watchers say.
Fintech mergers "will accelerate next year," said Matt Fronczke, financial adviser technology analyst at Kasina. "This was a year most of the incumbent financial services firms realized the trend toward integrated technology is a lasting trend."
"Large organizations woke up to this trend and engaged in this to ensure they can take advantage of the technologies, keep their place and grow their market share," he added.
Larger institutions have especially focused this year on cherry-picking technologies to re-service them to advisers. BlackRock, for example, acquired retail robo-adviser FutureAdvisor for a reported $150 million with plans to expand to business-to-business. Envestnet went on an acquisition spree this year with financial planning software provider Finance Logix for $30.5 million; robo-adviser Upside for an undisclosed sum; and the second biggest deal of the year, data aggregator and analytics company Yodlee, for $590 million.
The biggest deal in terms of price was SS&C's acquisition of Advent, a portfolio management software provider, in February for $2.7 billion.
One of the more talked about acquisitions was Fidelity Investments' purchase of eMoney, the popular financial planning software provider, in February, for a reported $250 million. Northwestern Mutual acquired LearnVest, a hybrid financial planning platform, for a reported $250 million in March.
"Holistic goals-based wealth management is definitely a trend that we saw over the past couple of years as the preferred way to deliver financial advice, and that led to a lot of strategic activity in the financial planning space," said Lincoln Ross, executive vice president of advisory services at Envestnet. "Strategic activity is the ability to complete or fill a gap in our platform."
It also keeps companies edgy and competitive. Instead of building technologies from scratch, which takes significant time and resources, firms hope to sprint to the finish line with an already established product. The industry has seen that time and time again this year with robo-adviser acquisitions.
It also allows them to offer more to their adviser clients.
"A lot of what is driving it is providers who want to enhance their service offering for advisers and play more roles in the core functions," said Matt Lynch, managing partner at Strategy & Resources, a consulting firm.
That's why firms will be entering developing territories, such as retirement advice and data analytics.
"I would expect to see more firms engaging in the development and acquisitions to bolster the stickiness of assets in that market," Mr. Fronczke said.
The industry already has seen some companies make a play for market share. Betterment is rolling out its 401(k) provider platform, Betterment for Business, in the first quarter of 2016.
The retirement arena is particularly attractive for digital advice providers because of the Department of Labor's impending fiduciary rule and the potential that comes with orphan accounts no longer serviced, Mr. Fronczke said.
Data aggregation and analytics also will be a hot spot for 2016, said David Lyon, chief executive of Oranj, a wealth management platform. He said Envestnet's acquisition of Yodlee was by far the most telling of this year.
"It was the most significant from a technology standpoint," he said. "I think that made everyone raise their eyebrows a little and understand the implications of the data they have and can use to better their business."
With a heavier emphasis on data analytics, advisers will be able to offer their clients a fuller financial plan.
"Leveraging the vast amount of data that financial services companies have helps advisers deliver better advice," Mr. Ross said. "We will see continued interest in data analytics."
Even technology companies are jumping on board with their own acquisitions. Financial Engines sent a shockwave through the industry recently when it acquired The Mutual Fund Store, a registered investment advisory firm with 300-plus human advisers, for $560 million. Internet company Blucora acquired independent broker-dealer H.D.Vest for $580 million in October.
Acquisitions aren't for every company, though. While there are more firms stacking up their services to be the one-stop-shop service provider for advisers, Aaron Klein, chief executive of Riskalyze, a risk assessment technology provider, said the beauty lies more in partnerships than acquisitions.
"We continue to see advisers reject the idea of locking into a one-walled garden. Effectively, it reduces the value of business," Mr. Klein said. "It makes it painful for them to react to new technology and new competition and make the changes they need to make in business."
Instead, he prefers the best-of-breed model approach, where advisers can pick and choose the vendors they prefer.
"We are not opposed to making acquisitions where it makes sense," Mr. Klein said. "But ultimately it is about making sure that advisers maintain access to solutions they want and the flexibility."
"When acquisitions turn into eliminating competition, that is where it gets more challenging for advisers," he said.