The intricacies of integrating RIAs

Dave Wellling of Mercer Advisors

Dave Welling, Mercer Advisors’ CEO, says the key to succeeding at RIA M&A is what happens after the deal has been struck.

Don’t call Dave Welling an aggregator. The executive at Mercer Advisors prefers “integrator” instead.

Welling joined Mercer Advisors as CEO (or perhaps integrator-in-chief) in the summer of 2017, taking over from David Barton, who transitioned to vice chairman and head of the company’s mergers and acquisitions division. At the time, Mercer’s assets under management stood at $10.3 billion and the firm had completed a grand total of six acquisitions over the previous 16 months.

Since taking the helm, Welling has kept the deals flowing at the Denver-based RIA, not to mention the assets rolling in. Mercer Advisors has subsequently grown to $56 billion in AUM as of the end of 2023 and has raised its total acquisition count to 85 since 2016, when it started making acquisitions, including a dozen deals last year.

How aggressive has the firm been with its acquisition cum integration strategy during Welling’s tenure?

Last December, Mercer Advisors demonstrated its dealmaking prowess by purchasing $495 million Paragon Wealth Strategies in Jacksonville, Florida, and then turning around the following day with the acquisition of $95 million Brighton Financial Planning, which operates in New Jersey and South Carolina.

Yeah, that aggressive.

And Welling hasn’t taken his foot off the gas so far in 2024.

On January 3, the firm announced the purchase of Transitions Wealth Management, a Denver RIA overseeing $465 million in assets for more than 400 clients. Not even a week later, it snatched up Des Moines, Iowa-based River Glen Wealth Counselors, with $275 million in assets and more than 160 customers. And just last week, it acquired MDK Wealth Management, a Seattle-based multifamily office with $2.5 billion in assets.

“We’re very focused on fit, both cultural and strategic, and quality,” says Welling. “And we’re very focused on areas where there is opportunity for us to turn on growth. One of the things that is very different about our integrated model is our ability to do just that.”

INTEGRATION, UNIFICATION, ASSIMILATION

M&A is a core business practice at Mercer Advisors and the numbers bear that out. More than 50 of the company’s 1,000-plus employees spend almost 100 percent of their time on acquisitions. Furthermore, a healthy 80 percent of those dedicated dealmakers focus on post-purchase integration, says Welling.

“The process of finding sellers is really important, but the value creation for the consumer, the employee, and the shareholder all happen after the acquisition,” says Welling.

Drilling down on the firm’s system for welcoming new RIAs into the fold, he says the process starts with operational integration, such as bringing the back offices and technologies together. The unification of service offerings and cultural assimilation that follow are what differentiates Mercer Advisors from other serial acquirers, Welling says.

“You’ve got integration, unification, and assimilation, and then by the time you get 12 or 18 months after, it’s Mercer Advisors,” he says.

“But it doesn’t happen right away. We gain many capabilities from each acquisition. It’s not about going in there and painting it the Mercer colors on Day 1,” he adds. “There’s a process that we go through, but the whole point is to come together, and I think that’s quite different from our competition.”

Speaking of competition, Welling is well aware that Mercer Advisors isn’t the only growth-bent RIA in the marketplace. And he acknowledges that the contention for even the smallest wealth management shop keeps pushing prices higher, although not yet, in his view, to exorbitant levels. Like Mercer Advisors, the competition also has deep-pocketed private equity players backing them with a seemingly bottomless supply of dry powder, even in the face of higher interest rates.

Mercer Advisors, for the record, is backed by Altas Partners, Genstar Capital, Oak Hill Capital, and Singaporean sovereign wealth fund GIC. Aside from managing the business, Welling spends much of his time managing the expectations of those PE partners, while his CEO predecessor Barton does the dealmaking and, of course, integrating.

“The CEO is a different seat when you’re a privately held business,” he says. “So that’s a group that I’m responsible for and accountable to as owners of the business.”

TECHNOLOGY, GROWTH, SERVICE

Considering all his emphasis on M&A, one might think Welling’s background would be in investment banking, maybe even at one of the wirehouse banks with which he now competes (more on that in a moment). Nevertheless, it was in the technology arena where Welling had his career breakout as an executive.

He was head of financial technology provider SS&C Advent immediately prior to his current position. Before that, he helped run Black Diamond, a portfolio management and performance reporting technology firm. (Advent Software was acquired by SS&C in mid-2015. Black Diamond Performance Reporting was acquired by Advent in June 2011.)

Yet while Welling made his bones in technology, he sees it as only one component of the “three-legged stool” that makes Mercer Advisors an attractive alternative for independent advisors seeking to grow their businesses.

“Technology is one of the legs of the stool, the other two are our ability to turn on growth and a fundamentally better service offering for clients,” he says. “We provide estate planning complimentary to all our financial planning clients. We have a tax team that could do tax work for individuals. We have an insurance team, and our investment offerings are unparalleled.”

Summing it up, Welling says, “Technology is the fabric that integrates that entire experience, all those different service offerings, into one set of capabilities for us to be able to support the advisor and to position the advisor to support the clients.”

How about artificial intelligence? Welling has no doubt that it is going to be impactful. The question is over what period.

It’s also worth noting that earlier in his career, Welling spent more than a dozen years at Charles Schwab, rising as high as vice president of advisor practice management. It was there, he says, that he learned the intense daily pressures faced by financial advisors to establish and grow their businesses, as well as why they’re so careful when it comes to finding a partner.

“I grew a great respect for the courage that it takes to be an entrepreneur in general, and what it takes to be an entrepreneur specifically in this space,” Welling says.

WHAT ABOUT COMPETITION?

“I’ve been around the wealth management industry and, in particular, the independent RIA industry for over 25 years, and I think the future has never been brighter,” says Welling, who in his free time can be found on the ski slopes near his Denver home.

That said, he doesn’t see it as all downhill from here.

“I do think the industry is approaching a couple of tipping points in terms of the pace of M&A growth and then also in terms of where it breaks through from what it has been historically, which is thousands of small firms doing great work in local markets, but not getting the broad national recognition from the consumer that some of the big names do,” Welling says.

Finally, concerning his RIA competitors, many of whom spend their days chasing the same deals as Mercer Advisors, Welling has nothing but kind words.

“In a very sincere way I’m rooting for their success, because they’re helping us collectively define the category,” he says. “Yes, they’re competitors, but I think bigger arenas of competition are outside of the RIA industry and outside of those of us who are considered among the largest RIA platforms.”

Of course, it makes some sense for Welling to want to be friendly with his RIA competitors when they have an enemy in common.

“We’re trying to build a firm that can compete with all the wirehouses. We do that today, but to do that at scale, we are going to work as one in the marketplace,” he says.