Wirehouses and banks ‘down but not out,’ Focus CEO warns amid RIA M&A boom

While the RIA’s industry’s record-breaking M&A activity has been largely led by private equity-backed consolidators, executives at the DeVoe M&A Succession Summit in Chicago warned of a potential shakeup in the competitive landscape for independent advisors.

“We need to be mindful of competitive forces. The wirehouses are down but not out, and they are large and formidable” said Focus Financial Partners CEO Michael Nathanson. “I’d say the same thing about banks and trust companies, and other potential competitors that will invariably get into this space.”

Nathanson spoke Thursday alongside Focus’s chief strategy officer Travis Danysh on a keynote panel moderated by Ben Harrison, head of client business services at BNY Pershing. Focus Financial Partners, which is backed by private equity giants CD&R and Stone Point Capital, manages $450 billion in client assets and has made more than 330 M&A transactions as one of the industry’s most active RIA consolidators.

“The wirehouses are not to be counted out. They have the wrong standard of advice, Reg BI is in my opinion not nearly as robust and protected as the fiduciary standard [of RIAs],” said Nathanson. “And yet that platform also has great people that also care deeply about their clients, and they have vast resources. They are still winning the battle in terms of brand raising, in terms of building brands.”

Leading wirehouses have increasingly seen advisor teams leave their firms in recent years for the independent RIA space, such as the $129 billion OpenArc’s breakaway from Merrill Lynch announced last month. The banking industry’s last major move to buy an RIA came when Goldman Sachs acquired United Capital in 2019, but Goldman flipped that business in 2023 to leading aggregator Creative Planning.

DeVoe’s Q2 Deal Book that tracks deals from the first half of this year found consolidators accounted for 53% of all RIA M&A deals. DeVoe’s research also found 79% of RIA M&A activity is driven by private equity firms, either as direct acquires or indirectly backing firms.

M&A competition

On the sidelines of Thursday's Day One of the DeVoe conference at the Ritz Carlton in Chicago, Carson Group’s SVP of M&A Michael Belluomini also spoke about the looming competitive presence independent broker-dealers [IBDs] pose to the M&A market for RIAs. Private equity firm Bain Capital holds about a 30% stake in Carson Group, which announced it passed $50 billion in AUM and has completed 21 acquisitions in the RIA market so far this year.

“We've only run up against an IBD in a process once, and it was [for] a Commonwealth advisor,”  Belluomini told InvestmentNews. “Interest rates are going to start coming down, IBDs still make a lot of money on cash sweeps. They're wealthier than God. There's plenty that can go out and deploy capital. But they haven't done the actual W2 [advisor] purchase much yet, I'll be interested to see if they decide to enter the market.”

Osaic has been among the most active independent broker-dealers to increase its RIA footprint given the firm’s June purchase of the $13.5 billion Boston-based RIA CW Advisors. Other IBDs such as Cambridge Investment Research have made big splashes to add RIA assets.