RIAs to have a rollicking year

Mergers and acquisition chatter in the registered investment advisor market started off at a substantial volume in 2024 as reports of Fisher Investments potentially seeking a buyer kicked off the new year. Fisher Investments, with $236 billion in client assets, denied the reports.

But the discussion of a mega-RIA like Fisher Investments possibly being up for sale is an indication that 2024 will likely be studded with significant transactions that further transform the RIA marketplace from a collection of boutique, mom-and-pop businesses just 20 years ago into some of the assets that are most coveted by Wall Street’s private equity investors.

As of this writing, the analysts and investment banks haven’t yet released their year-end tallies of RIA deal flow for 2023. After getting off to a slow start last year, RIA deals surged over the summer.

According to investment bank Echelon Partners, in the quarter ended September 30, RIA buyers announced 86 transactions, surpassing the 65 announced in the second quarter by 32 percent. That was a rebound to levels not seen since early 2022, according to Echelon.

The Fisher Investments’ chatter points to the potential for another period in which deals and deal-makers shine, one veteran industry executive noted.

“We’ll continue to see deals in the RIA space this year – just think about what happened in 2023,” said Larry Roth, managing partner at RLR Strategic Partners. “Focus Financial Partners went private, CI Financial had its name changed to Corient, and other large networks or aggregators may be recapitalizing.”

“And then you have the private equity investors selling percentages of the firms they own to other PE investors to take some money off the table and gain some time to consolidate operations,” Roth said. “It should be another lively year for RIA M&A.”

“Fisher Investments is a very high-quality, efficient business,” he added. “I can’t imagine the valuation for that firm.”

The price tag for Fisher Investments could be several billions of dollars.

Giant RIAs like Fisher keep climbing in value. Last year, private equity manager Clayton Dubilier & Rice said it was acquiring the publicly traded Focus Financial Partners, an RIA aggregator, and taking it private for the price of $7 billion. Focus Financial Partners controls $300 billion in RIA assets, or roughly 27 percent more than Fisher Investments. 

RIA valuations are tricky, however, and are based on several factors, not just assets. Fisher Investments is known for targeting so-called massaffluent customers, or those with assets of $500,000 or more, and fees may be higher for clients with fewer assets than those with $10 million or more, industry executives noted.

“I’m not sure what the average account size is at Fisher Investments, but the margins for a mass- affluent business are better than a high-net-worth business,” Roth said.

Last year saw perhaps the most important deal in the history of the RIA industry: Goldman Sachs Group’s sale of its registered investment advisor business, Personal Financial Management, with more than $20 billion in assets and a few hundred advisors, to Creative Planning.  

For the giant investment bank, it was a retreat from the mass-affluent market. Goldman Sachs purchased the business, formerly United Capital Financial Partners, for $750 million in 2019. Now it was selling a former RIA aggregator, United Capital, back to a homegrown mega-RIA, Creative Planning, which is privately held and tightly controlled by Peter Mallouk.

The RIA industry, comprising thousands of firms that remain independently owned and dozens of Wall Street-backed buyers known as aggregators, had been waiting years for such a watershed moment in which a mega-RIA bought another giant firm.

Now that it’s come to pass, look for other such deals to occur, particularly as independent broker-dealers like LPL Financial, Osaic, and Cetera Holdings continue to expand through acquisitions.

“Independent broker-dealers are making more of a push into the larger-scale, RIA platform play,” said Alois Pirker, an industry consultant. “Look at Focus Financial and the interesting journey it went through, from private company to public back to private. Now the new owners have taken out the management team and are consolidating operations.”

Focus Financial “tried to go public but after few years fell a bit flat,” Pirker said. “Now the IBDs are interested in owning RIAs, the business is coming full circle. RIAs inevitably will be a larger focus of regulators, and the independent broker-dealers know how to deal with them.

“RIAs are turning more into the large broker-dealer business model,” Pirker said. “For example, take home-office capabilities in trading. Just like Merrill Lynch did years ago, the RIA firm doesn’t want its advisors spending time on picking stocks but are looking for a chief investment officer to build model portfolios.”

Meanwhile, 2024 is likely to see more investors in large RIAs and IBDs seek new investment or recapitalize their firms to bolster balance sheets for acquisitions and paying down debt, industry executives said. Notable reinvestments occurred last year, including Genstar Capital reinvesting in Cetera Financial Group and Mercer Advisors adding a new investor, Atlas Partners.