Could we be in for a "Trump bump" in RIA M&A?

It's already been a historically busy year for RIA M&A, but the incoming Trump administration's potential tax policies and deregulation are likely to encourage even higher levels of activity, according to industry observers.

By at least one estimate, there have been around 240 M&A transactions among RIAs during the past three quarters up to September. Deals are on pace to hit 330 by the end of the year, which would make 2024 the second-most active year in wealth management dealmaking history.

The dealmaking bonanza has been fueled by a cocktail of secular trends including aging advisors, private-equity funding, and small firms’ need for scale. But insiders and longtime observers expect the new administration could drive that activity further, according to Barron's.

“Everybody is waiting for the number of RIA acquisitions per year to reach a tipping point that increases the number of transactions from [around] 250 a year to several hundred,” Dave Welling, CEO of Mercer Advisors, told the news publication. “The new administration likely leads to a bullish outlook for M&A.”

One factor behind the bullish projections is the likelihood that despite worryingly high levels of US debt, a Trump White House won't let capital-gains tax rates go higher than they already are.

“Most transactions in the RIA sector are succession-planning oriented, which likely means the capital-gains tax variable is most relevant,” said Barnaby Audsley, senior vice president of Echelon Partners, which tracks advisor M&A.

In its most recent report, the firm said deal volume is on track to post a CAGR of 10.2 percent in the five years from 2019 to 2024, with average assets per deal floating comfortably above $1.9 billion.

Echoing that sentiment, David DeVoe, founder and CEO of DeVoe & Co., said demographic trends remain a major force behind M&A activity, with many RIA founders nearing retirement eager for an exit point.

“With a potentially favorable tax environment, aging founders may accelerate succession plans, increasing the supply of firms interested in a sale,” he said.

Devoe & Co.'s latest data snapshot adds to the go-go picture, counting 39 transactions in October alone – a single-month record and nearly double the 21 deals recorded the same month last year. And while Fidelity's own tracking noted a slight decline in year-over-year deal volume for the first three quarters of 2024, the firm said client assets in motion had risen sharply compared to the prior year.

A move towards lessened regulation could be another catalyst. Trump has voiced his intentions to eject SEC Chair Gary Gensler from his post, and while it remains unknown who he wants next in line, the once-and=future president is likely to favor someone who would move to ease the compliance challenge for RIA firms, which could lessen the cost and complexity of unions.

“A lighter regulatory environment may encourage dealmaking,” DeVoe said. “Fewer compliance burdens make transactions easier and potentially less costly for buyers and sellers.”

And while not directed by Trump, the Federal Reserve is expected to progress further on its rate-cutting path under his watch, which could provide another boost by keeping borrowing costs low and enabling private-equity firms and strategic buyers to finance acquisitions more easily.

“Lower borrowing costs encourage both strategic acquirers and private-equity firms to leverage financing, making acquisitions more feasible and potentially spurring activity,” DeVoe said.