'Bogged down' advisors just want to have fun (again)

The momentum in RIA consolidation has shown few signs of flagging over the years – and a series of industry reports over the past month point to continued strength in M&A.

The latest report from DeVoe & Company catalogued a record 272 transactions last year, breaking the previous 2022 record of 264 deals. Echelon Partners reported 366 deals last year in its own tracking, besting the 2022 season of 340 transactions. 

The longer-term picture is no less robust. A new report by Fidelity depicts a blockbuster decade for RIA M&A, with the number of deals growing from 89 in 2015 to 233 in 2024.

While the reports identify some common themes and players driving the story of industry consolidation – the need for succession and the influence of private equity readily come to mind – a C-suite leader from one of the most prolific dealmakers in the industry sees one factor that's been widely overlooked.

"Many of these people founded their businesses because they enjoyed working with clients, and they're just not having fun anymore. They're so bogged down with compliance and technology and the pace of change," said Jim Cahn, the chief strategy officer at Wealth Enhancement Group. "I think one of the main reasons why people choose to join a larger organization is they want to get rid of all that."

A model of partnership

Wealth Enhancement Group emerged as a very active player on the M&A scene in recent years. According to Cahn, the $102 billion aggregator completed 22 transactions in 2024, though he estimated those only represent 5 percent of sellers they spoke to. Among other criteria, he said the RIAs who made the cut had to be growth-focused, in contrast to the majority with flat or net negative asset flows across the industry.

"We really had a focus on building out the Southwest and the Northwest, which are two geographies where we didn't have a lot of presence," he said. "Our strategy isn't necessarily geographically based. We do want to be a national firm."

Cahn's tenure at WEG began in 2012, previously serving as the CIO and portfolio manager at the Vestian Group. Over that time, WEG was affiliated with LPL, though LPL revealed the end of its affiliation in December. According to WEG, the relationship will be ending on June 30.

While the firm has leaned substantially into inorganic expansion in recent years, that wasn't always the case. Before 2013, Cahn said, WEG didn't engage in much M&A partly because of its strong organic growth at the time.

"When we sat down in 2012 to think about why would we do M&A, we realized we needed to get talent to enter new markets. And so how will we attract the best talent?" he said. "And that's when we came up with our partnership model."

Broadly speaking, he said aggregators can be divided into two models. There are financial buyers who take a stake in an advisory business or buy it whole, but don't really integrate the business. Other buyers, meanwhile, have distribution models where services and operations are brought together and centralized.

"We like to think our partnership model gets the best of the autonomy and entrepreneurial energy you see in financial buyers, but also the benefit of scale among distribution buyers," he said. "I think that's one of the things that made us successful."

Investing in value and growth

Despite the number of RIAs continuing to grow in spite of consolidation, Cahn believes the trend of mergers and acquisitions will continue as firms seek to deliver more value to clients without hurting their margins, which means investing in technology and additional services. 

"The other big trend we're seeing is a shift from client acquisition as a relationship-based activity," he said. "It used to be that advisors would go out to the golf club or hang out with their kids at their soccer games, and they would pick up clients that way. We're seeing that that's a lot harder to do."

While those approaches of going out and meeting people might have worked before, Cahn argued that landing new clients has only gotten more challenging. Today's advisors and firms, he argued, need to take a much more systematic approach to build new relationships.

"It's about having nationwide COIs [centers of influence]. It's about having access to digital and direct marketing," he said. "Client acquisition is really becoming much more centralized.

"I think it's a great time to be in this space. If you look at the complexity of financial planning, helping people understand their tax and estate planning situation, and helping them understand the markets, there are more questions than ever," Cahn said. "I think our industry is doing a real service to the community and helping people live great lives."