Growth opportunities for advisory firms may need to come from acquiring individual advisers, rather than larger firms, because that's where buyers are most likely to find willing sellers, according to a new
InvestmentNews/BlackRock study.
Many more advice firms consider themselves buyers than sellers, so those seeking acquisition opportunities should consider looking down-market at solo advisers who are retiring or otherwise seeking to get out of the business, the report said.
Research shows that retirement advice rules that take effect next year and require fiduciary liability are expected to push some individual advisers who don't want to make operational changes to their businesses to instead sell.
“We expect to see more firms evaluating acquisitions of individual advisers and their clients, as opposed to firms, as more advisers approach retirement and look to gradually step back from their day-to-day businesses,” the
InvestmentNews/BlackRock 2016 Elite RIA Study released Tuesday said.
About a quarter of registered investment advisers said they plan to grow their business through mergers and acquisitions over the next 12 to 18 months, the study found.
Three-quarters of those businesses plan to be the acquirer in the transaction, while 15% said they plan to merge with a similarly-sized firm and 8% anticipate being acquired, the survey of 401 advice firms found.
A full 100% of the “elite RIA” firms that plan to grow inorganically over the next year-and-a-half said they'll be the buyers in the transaction. Elite firms are highly productive firms with more than $250 million in assets under management.
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“It's a very lopsided market, with only a handful of firms wanting to sell,” said Matthew Sirinides,
InvestmentNews senior research analyst. “Picking up solo advisers will be especially attractive for elite advisers because their already scalable businesses will find it easiest to integrate these smaller operations.”
The most likely sellers will be small registered investment advisers who still rely on some commissions and others who custody assets with independent broker-dealers, he said.
The Labor Department's fiduciary rule for retirement advice is the most notable regulation expected to spark advisers to sell their books of business.
(More: Troubling surprises advisers discover when switching firms)
About two-thirds of advisers expect the DOL rule — requiring all retirement advice be given in clients' best interests — will cause a wave of financial advisers to retire early, an
InvestmentNews survey of about 1,700 advisers found earlier this year.
More than half of advisers surveyed said they expect the rule, which begins to take effect April 2017, will lead a portion of advisers to pursue a different career.
