While registered reps and financial advisers have continued to move to new firms, albeit at a much slower pace during the COVID-19 pandemic, broker-dealer acquisitions have curtailed dramatically since March.
That market may be thawing, with Cambridge Investment Research Inc. on Wednesday saying it had purchased a small broker-dealer, FCG Advisors in New Jersey, with nearly $4 billion in assets, 19 reps and advisers and $9 million in annual revenues.
Terms of the deal were not disclosed.
FCG Advisors will operate as a branch, or separate enterprise, at Cambridge. John Combias, founder and managing director of FCG Advisors, will continue to lead the group.
Broker-dealer mergers and acquisitions in 2020 have been at a much slower pace than recent years, which saw blockbuster deals involving thousands of advisers; last November, for example, Advisor Group said it was buying Ladenburg Thalmann Financial Services Inc. Rising technology and compliance costs have made business difficult for many small firms.
"Obviously, the pandemic has put many things on hold, with M&A included," said Jon Henschen, an industry recruiter. "Implementation of Reg BI has added additional compliance and tracking expenses to broker-dealers with the smaller firms under 50 advisers especially vulnerable to these expense increases."
"If we have another substantial drop in the market, we expect to see a surge of M&A activity from the smaller broker-dealers that have been already struggling," Henschen said.
Cambridge Investment Research is one of the largest independent broker-dealers in the industry and produced $1 billion in revenue for the first time last year, according to InvestmentNews research. The firm had more than 4,200 reps and advisers under its roof last year.
Two years ago, Cambridge Investment Research bought Broker Dealer Financial Services Corp., a mid-sized firm with about 150 reps and advisers, $3.5 billion in assets and $20 million in annual revenues.
While industry statistics pointing to a succession crisis can cause alarm, advisor-owners should be free to consider a middle path between staying solo and catching the surging wave of M&A.
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