RIA consolidation could put $2.4 trillion in play over next decade

RIA consolidation could put $2.4 trillion in play over next decade
Some argue the numbers are inflated because they don't factor in advisers 'dying with their boots on.'
NOV 18, 2019
The aging financial adviser demographic is expected to put $1.6 trillion worth of client assets in play over the next five to 10 years, according to research from Cerulli Associates. The Boston-based consulting firm counts $2.4 trillion in client assets as the total addressable market for potential registered investment adviser acquisitions over the next 10 years and cites the lack of succession planning as driving the bulk of the activity. "Succession planning resources are decentralized in the independent channel, meaning the largest, well-capitalized RIAs are best positioned to match advisers to a like-minded successor, help navigate the process and provide capital to fund the transition," said Marina Shtyrkov, a research analyst at Cerulli. Cerulli's research shows that more than 80% of advisers currently affiliated with an RIA consolidator view it as a succession strategy. Cerulli gets to the total of $2.4 trillion worth of client assets in motion by including an anticipated $469 billion worth of breakaway broker accounts and $348 billion worth of assets from "growth-challenged" RIAs. "The economics for internal succession are improving, but the industry desperately needs [first-generation advisers] to start putting succession plans in place," said David DeVoe, managing director of DeVoe & Co., a firm that tracks data showing M&A activity in the RIA space hitting new records every quarter. "Cerulli is spot-on with their thesis, and their data seems directionally accurate," Mr. DeVoe added. But even in an industry where the average practitioner is 58 years old and only about 30% have established formal business succession plans, not everyone sees a succession plan emergency on the horizon. "Most advisers are self-employed solo practices, which pays pretty darn well, particularly if you've been doing it for 20 or 30 years," said Michael Kitces, partner and director of wealth management at Pinnacle Advisory Group and co-founder of XY Planning Network. Mr. Kitces said the life of a veteran solo practitioner with a small RIA usually doesn't require a lot of effort related to organic growth, and "client servicing usually involves a lot of nice lunches and some golf." "They're probably making a couple hundred thousand a year," he added. "Why on earth would you sell that? Why would you want to sell that?" Mr. Kitces is not alone in pushing back on the popular argument that the aging adviser demographic will produce a tsunami of RIA consolidation. "I don't think anyone really wants to sell their firm, but sales are driven by things like the regulation, valuations, the stock market and the health of the owner," said Jason Van Duyn, president of AQuest Wealth Strategies, a $300 million firm that has acquired seven small advisory practices over the past three years. [Recommended video: Michael Kitces: Why smaller RIAs aren't for sale] Like Mr. Kitces, Mr. Van Duyn cites the basic math demonstrating that a sole practitioner with $30 million in client assets can be netting about $160,000 per year. "The valuation to sell is probably two times revenue, but for someone who is 67 and in decent shape, the job isn't killing them," he said. "They're basically working part-time for $160,000." Mr. Van Duyn said he met recently with a 90-year-old adviser to discuss buying the advisory practice that his wife now must drive him to because he can no longer drive. "He said he doesn't know when he wants to retire, but probably within the next few years," Mr. Van Duyn said. "He's 90 and he can't commit to a retirement date." Mr. Kitces said the advisory business is like the legal profession, in that professionals can keep working as long as their mind is clear. "A lot of people essentially die with their boots on," he said. "Someone will pay you maybe two times your revenue, but if you can make as much money by keeping it for three more years as you would for selling it, and then you can still sell it three years later, you tend to just stick around for three more years," Mr. Kitces said. "Then three years later you do the math and it's the same math."

Latest News

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

Fintech bytes: Pontera and Opto Investments expand RIA reach with new tech partnerships
Fintech bytes: Pontera and Opto Investments expand RIA reach with new tech partnerships

Snowden Lane taps Pontera for held-away retirement account management, while Opto Investments enhances an Indiana-based independent RIA's private markets offering.

Credent Wealth Management debuts in Detroit with TFG Advisors deal
Credent Wealth Management debuts in Detroit with TFG Advisors deal

The $420 million RIA in Auburn Hills and Ann Arbor gives Credent its second and third Michigan locations while pushing it closer to $4 billion in AUM.

Investor anxiety hits six-year high amid market turmoil, Allianz finds
Investor anxiety hits six-year high amid market turmoil, Allianz finds

New survey reveals heightened investor concern over market volatility, retirement readiness, and the impact of tariffs on living costs.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.