Independents are doing most of the deals; difficulty expanding business organically
The pace of advisory firm mergers and acquisitions has picked up, following a slow 2010, and investment advisers themselves are doing most of the buying, according to Pershing Advisor Solutions LLC.
The trend of independent investment adviser mergers “began to show legs in the fourth quarter of 2010, and it is persisting right now,” said Mark Tibergien, chief executive of Pershing Advisor Solutions. “There is a strong motivation to figure out how to be part of another firm.”
Many of the deals that Pershing sees involve no money changing hands but are partnerships driven by tightening profit margins and worries about increased regulatory and compliance demands, he said.
In the past couple of years, the average revenue growth for independent advisers has run about 5% to 6%, a big drop from the pre-market-crash rate of 20% growth, by Mr. Tibergien's estimate.
“If you are counting on the market to give you a raise, you are going to be in a tough environment,” he said. “Doing things organically will not be adequate to keep ahead of the cost of doing business.”
Deals involving the sale or merger of a retail-focused RIA with $100 million or more in assets peaked at 68 deals in 2007, according to Pershing. Last year, there were only 41 publicly announced deals, though the pace had begun to pick up considerably by the end of 2010.
Financial advisers have the urge to merge. The case is not the same for private-equity-backed consolidators, who have dominated the market in past years, Mr. Tibergien said.
“This is not a business that lends itself well to passive shareholders,” he said.
In a blog posting Tuesday, Elmer Rich of Rich and Co., which has represented
buyers and sellers in advisory firm deals, said he has seen a "dramatic failure of 'roll-up' schemes" in which consolidators buy up several advisory firms.
