RIA M&A is here for the longer term, says Fidelity

There were 52 mergers and acquisitions in the RIA industry in the fourth quarter of 2023 and it’s looking likely that activity will remain strong for some time.

That’s a key takeaway from a new report from Fidelity Investments that reveals that the quarter’s deals saw $54 billion in purchased assets with December alone, recording 19 deals with assets of $8.4 billion. The quarter was just three transactions (down 5%) and $9 billion in assets (down 14%) behind the third quarter’s pace.

The fourth quarter topped out a year which saw a strong start for the industry’s M&A with 70 deals (including reported spillover from 2022), followed by 49 transactions in the second quarter, and 55 in the third quarter which included July’s record-breaking 19 transactions involving $29.6 billion. Across the three quarters, assets averaged $56.8 billion.

However, 2023 was not a record breaker overall and activity was lower than in 2022 with 226 transactions (down 1.7% year-over-year) and $256 billion in purchased assets (down 9.7%).

In the broker-dealer channel, there were five transactions in 2023 with total assets of $196.9 billion, which, while one transaction fewer than in 2022, was a 47% increase in assets thanks to Osaic Wealth’s acquisition of Lincoln Wealth with around $108 billion in assets.

Fidelity’s report cites three factors for the strength of M&A in the RIA space despite the multiple interest rate rises last year:

• Steadfast M&A fundamentals and the potential threat of an impending recession, which keeps firm owners focused on strategic planning
• Creative deal structures are employed to counter the rising cost of capital
• Significant level of interest and investment from private equity in the wealth management industry, which is already increasing its share of deals while private and publicly held entities’ transactions have declined

Private equity was behind 78% of 2023’s RIA M&A transactions, up from 75% of transactions from the previous year as the industry is attracted to RIA’s steady revenue streams, potential for consolidation, and demand for financial advice.  

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The report also reveals the rising importance of Texas as a financial hub - likely helped by its lower cost of living, tax regime, and diverse talent pool - with 8% of all RIA M&A transactions taking place in the state in 2023 and a 296% surge in assets involved.

Meanwhile, California saw 12% of overall RIA M&A activity, three Northeast states - Massachusetts, New York, and Pennsylvania - made up a combined 19%, and five in the Midwest - Minnesota, Illinois, Ohio, Wisconsin, and Kansas – accounted for 15%.

Wealth Enhancement Group closed the greatest number of deals in 2023 (15), followed by Focus Financial Partners (13), Hightower Advisors (11), Captrust (9), and Mercer Advisors (9). The figures include acquisitions made by Focus Financial and Hightower Advisors’ network/partner firms.

“While no records were officially broken in 2023, we’re calling 2023 a year of resilience, strength, and stability for RIA mergers and acquisitions,” the report states. “We anticipate that the competitive and evolving M&A landscape will continue to force our industry to remain adaptable in 2024.”