Scorching hot August for RIA M&A: Fidelity

New opportunistic buyers continue to enter the space, while serial buyers, those aggregators who have long dominated the market, are reportedly becoming more selective.

August set new monthly highs for transactions involving registered investment advisers, according to a new report by Fidelity Institutional, putting to rest any concerns that a bear market for stocks and higher interest rates, which increase the cost of borrowing, would put a damper on the red-hot RIA mergers and acquisitions market.

New opportunistic buyers continue to enter the space, according to Fidelity Institutional, while firm multiples — the asking price based on a cash flow valuation — currently remain high. But serial buyers, those aggregators who have long dominated the market, are reportedly becoming more selective as the cost of capital increases.

“August RIA M&A activity set another monthly record, with 24 transactions comprising $31.6 billion in assets under management, significantly higher than August 2021’s 16 deals,” Scott Slater, vice president of practice management and consulting at Fidelity Institutional, wrote in Fidelity’s monthly Wealth Management M&A Transaction Report.

And over the first eight months of the year, assets under management in RIA transactions was up 35% compared to the same period last year, according to the report.

“What’s interesting is there was nothing specific to drive RIA deals in August,” said Peter Nesvold, a veteran merchant and investment banker in the financial services industry. “The RIA industry continues to defy macroeconomic trends. Across other industries deals are down but not in the wealth management space.”

Nesvold cited two reasons for the continued demand for RIAs. First, about a half-dozen years ago, private equity-backed professional buyers became a driving force in consolidation and they continue to deploy capital and grow through acquisitions.

And since the great recession of 2007-2008, financial advisers and wealth managers are 15 years older, he added. “It’s the demographics. Wealth managers are among most seasoned professionals in the economy.”

The Fidelity Institutional report highlighted several large notable transactions that were announced last month: Integrity Marketing Group’s purchase of $13 billion Gladstone Wealth Partners and Creative Planning’s acquisition of Wipfli Financial Advisors with $5 billion in assets under management, along with several other deals involving RIAs with more than $1 billion in client assets.

Wealth Partners Capital Group-backed Merit Financial announced three deals, while Allworth Financial and Hightower each announced two.

“While we see several $1 billion-plus deals, smaller transactions continue to come to market, with 10 sub-$500 million deals” in August, Slater noted. “Smaller transactions are up 85% year-to-date over 2021, showing RIA deal activity remains very strong and well ahead of 2021 despite challenging forces of higher cost of capital and volatile and declining equity markets.”