Biden’s tough tax talk fuels record M&A activity

The threat of higher taxes in 2022 is giving RIAs another reason to make a deal before year-end, while the lingering Covid-19 pandemic is forcing financial advisers to focus on succession planning.

As the pandemic enters its third year and everyday life takes on some semblance of normalcy, the InvestmentNews team looks back at the most interesting industry developments of 2021.

President Joe Biden’s threats of higher taxes have become a key driver in this year’s record-level consolidation among registered investment advisers, which reached the 200-deal mark last week.

With a month to go in 2021, RIA deal volume has already eclipsed the 159 deals announced in all of 2020 and is well beyond the 131 deals in 2019. In fact, through just 11 months in 2021, total deal volume has exceeded the totals of 2017 and 2018, combined.

With December typically among the busier months for RIA deal announcements, David DeVoe, managing director of DeVoe & Co., expects 2021 to set a record that could be hard to beat.

“The next five or six-plus years we’re going to see upward trajectory in the number of deals, but we may not see another record year in 2022,” he said.

The reason merger and acquisition activity next year could break a decade-long streak of record deal volume goes back to the main drivers of activity this year, DeVoe said. “We saw a surge at mid-year from firms looking to get deals done in 2021,” he said.

In addition to the steady drumbeat of calls from the Biden administration and Congressional Democrats for higher taxes starting next year, DeVoe said the lingering Covid-19 pandemic forced a lot of financial advisers to focus on succession planning, or the lack thereof, which drove consolidation as the go-to succession plan.

“There are 10,000 advisory firms out there and we know only 30% have succession plans in place,” he said.

While the tax threat remains a moving target that triggered a lot of deal activity this year, DeVoe said the pandemic was a “shot across the bow of every adviser that doesn’t have a succession plan.”

“Advisers over the years have kicked that can down the road almost every year when it comes to succession planning, but in 2021 that can didn’t move,” he said. “Covid proved that continuity planning was not a theoretical concept anymore. We had a year where advisers were confronted with their own mortality, so they dug in, rolled up sleeves and decided to take it seriously.”

The result of the Covid-inspired focus on succession planning, was a wave of deals this year, he explained.

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