This week's announced merger between Cornerstone Capital Management Inc. and Regal Investment Advisors LLC shows that
consolidation in the financial advisory space is far from over.
In many cases, deals are pursued because of demographics and/or economics, according to David DeVoe, owner of the mergers-and-acquisitions consulting firm DeVoe & Co. LLC.
“M&A in the registered investment adviser space has increased fairly steadily over the last six or seven years, and it will continue over the next 10 years,” he said.
A main driver, he added, is the graying of the industry. The average financial adviser is now 55 years old, and nearly a third are over 60.
“Depending on the research, only between 20% and 40% of advisers have a succession plan,” he said. “But even if there is a plan, there is the question of how comprehensive that plan is.”
In the case of the Cornerstone-Regal, the marriage is about building scale, according to John Kailunas II, owner of Regal, a $264 million advisory firm based in Kentwood, Mich.
“We were looking for a partner like Cornerstone,” he said.
Raleigh, N.C.-based Cornerstone, which has just $41 million under advisement, represents a foot in the door to the $1 trillion university market.
Mr. Kailunas described the university marketplace as a “unique marketing opportunity.”
He added that the merger brings together Regal's relationships with multiple custodians and money managers, and Cornerstone's expertise in the university market.
Cornerstone chief executive James “Marty” Barnes will be in charge of Regal's new initiative focusing on managing assets for employees of universities throughout the country.
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The growth of Regal is just ramping up, according to Mr. Kailunas, who plans to announce mergers with two more advisory firms during the first few months of 2012.
“It has to be the right fit for us,” he said.
Such strategic deals are becoming more common, according to Mr. DeVoe.
“Eight years ago exiting, the industry was the most common reason for a firm being sold,” he said. “Now more advisers are realizing the benefits of [gradually] selling and staying on board after the deal, because better planning makes the firms more attractive and increases the valuations.”
