Fidelity sees shifting dynamics among RIA buyers and sellers

Private equity is still hungry for access to wealth management and smaller firms are fine-tuning their pursuit of scale.

The overall dynamics of mergers and acquisitions in the wealth management space are evolving but the trend is still toward increased M&A activity, according to the latest report from Fidelity Investments.

Fidelity’s first-quarter numbers show 67 deals totaling $83.5 billion in assets under management, which compares to 57 deals totaling $84.2 billion during the same quarter last year.

Much of the quarter’s activity unfolded in March, and it got a boost from First Citizens Bank’s acquisition of Silicon Valley Bank’s $15.9 billion RIA division.

Measured by assets acquired, January saw a 36% decline from January 2022 and February was down 17% from a year earlier, while March assets were up 55% over March 2022.

The quarter also saw 20 acquisitions of firms managing at least $1 billion, including eight in March.

After Silicon Valley Bank, the largest deals tracked by Fidelity during the quarter included CI Financial’s acquisition of $8.4 billion Avalon Advisors, Captrust’s acquisition of $5.8 billion Monroe Vos Consulting, and Sequoia Financial Group’s acquisition of $5 billion Zeke Capital Advisors.

While large deals, especially in March, kept the asset totals on track, most of the activity during the quarter involved RIAs with less than $1 billion, which made up 70% of transactions during the quarter.

According to Fidelity, which only tracks deals involving pure wealth management firms with at least $100 million, the median deal size during the quarter declined by 29%, to $400 million, from the same period last year. And sub-$500 million transactions accounted for 55% of the quarter’s activity.

While M&A activity during the quarter was hampered by two interest rate hikes, a banking crisis and the ongoing threat of recession, the fundamental forces driving the consolidation remain, said Laura Delaney, Fidelity’s vice president of practice management and consulting.

“Smaller firms are saying it’s tough out here, and it’s tough to grow,” she said, adding that RIAs are pursuing scale not necessarily to get bigger but to become more competitive and “operationally efficient.”

Delaney also sees a slight shift in the types of buyers, with 15 of the 20 acquirers in the large RIA category representing first-time buyers. That’s up from seven a year ago, when there were just nine buyers in the large RIA category.

Strategic aggregators still represent the majority of deals, including 44 in the recent quarter, which is down from 46 deals a year ago.

One thing that isn’t changing is the appetite for wealth management among private equity investors.

During the first quarter, Fidelity tracked three new private equity investors in the wealth management space, which keeps 2023 on track with 2022, when 13 PE firms made first-time investments in wealth management.

Delaney said seeing PE firms continue to invest in the wealth management industry confirms that “the RIA space is still very vibrant and growing.”