Costly referral programs fuel RIA M&A growth strategies

With several custodians gearing to launch new RIA referral programs to challenge longstanding offerings from Fidelity and Schwab, access to these referrals is a growing strategic factor for M&A transactions among RIAs.

Merit Financial, a Georgia-based RIA with roughly $12 billion AUM, announced earlier this month that it was joining Fidelity's Wealth Advisor Solutions (WAS) client referral program. New RIA M&A activity research from Devoe & Company has identified growth as the leading reason for RIAs to sell externally over other factors such as succession planning and liquidy. 

“On the side of M&A, I think it's attractive on both sides. For an advisor who is growing, by merging with us, it opens another powerful opportunity for them to continue to climb even higher,” said Chrissy Lee, COO at Merit, which has bought 34 RIAs since 2020. “On Merit's side, we are always seeking to partner with the best Advisors who will bring great resources for our clients through the WAS referral. It's a win-win.” 

Merit will pay Fidelity 0.10% of a referred client’s assets classified as fixed income and 0.25% for all other referred assets under management, paid each year that client stays at Merit. Those fees are in addition to the $50,000 annual WAS participation fee paid to Fidelity, according to Merit’s March 2025 ADV filing.

“We believe the cost and fees are not a barrier because of the opportunities that this relationship brings to both sides,” Lee said. “It's the cost of doing business. We believe the WAS program will be a great additive to the existing organic tracks Merit has.”

Fidelity’s WAS program is the biggest RIA client referral route alongside the Schwab Advisor Network, which increased its fees for the first time in almost 20 years in February. InvestmentNews reported RIAs will this year face a 5% fee increase, meaning Schwab will charge slightly more than 26 basis points on the first $2 million in client assets. 

Mega RIAs such as Mercer and Creative Planning participate in both Fidelity and Schwab’s client referral programs, according to their ADV forms. Corey Kupfer, whose Kupfer law firm specializes in RIA M&A, says dealmakers are split on the appeal of referral programs and need to compare their cost to other more organic customer acquisition costs. 

“Some folks are like, it's a negative, because it does adversely affect the profitability on those accounts or EBITDA when you're looking at doing a sale” Kupfer said. “But on the other side, there are firms that really have taken advantage of it, it's been a major growth factor.”

Robinhood plans to create a referral network for RIAs through its acquisition of TradePMR. Citywire reported last month that Pershing is developing its own RIA referral program and that Goldman Sachs is considering doing the same. 

Chuck Failla, CEO of the RIA Sovereign Financial Group with about $880 million AUM, says that new entrants into the RIA referral space would appeal to him only if they dropped the lifetime annual basis point fees for each year a client stays at a firm.

“We would definitely get more interested, if they put an end to when I have to give that 25 bps back. I would pay 25 bips for some years, but to pay 25 bps in perpetuity, not too excited about that,” said Failla. “I'd rather bite the bullet and build my own system and then just be independent and not have to be beholden on that.”

Intention.ly and Snappy Kraken are two RIA marketing platforms that he sees as more affordable lead generation alternatives to custodial referral programs. “You certainly pay for that marketing, but it's not like you're paying that referral fee for the rest of your life either,” Failla says.

“They will do the internet advertising, drive people to a landing page that will collect the data, then you start dripping on them with newsletters, invite [client leads] to webinars. One's easier, but I would argue is quite a bit more expensive over time. One is harder, but I think is much more cost effective over time.”