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Perspectives on the RIA Deal Market

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In only the first few months of 2021, a stunning number of RIA M&A transactions were announced, creating a headline frenzy of deal news, says Dave Barton, Vice Chairman, Mercer Advisors who analyses this part of the ETF and wealth management industry.

We here at Mercer Advisors were a big contributor to these volumes by announcing 8 transactions of our own over the last 5 months for a total of 44 acquisitions since 2016. As a result, many in the industry are wondering what is at play here and can these volumes sustain themselves through the rest of 2021 and beyond?

The facts are that deal pipelines across the industry are bursting at the seams, driven by demographics as founding principals age into their retirement years, and also due to structural industry issues that continue to contribute to advisors needing to make strategic decisions for the future of their careers and their businesses.

How is the deal market effecting you?

What we are finding is that sellers are falling into three distinct camps:

1) Growth-minded advisors that want out of the back-office complexities which are limiting their capacity to expand: 2); Older advisors who want to continue in their careers, but also want to shed the back office, compliance and HR issues that are diminishing their job satisfaction; and 3) Retiring advisors that want to exit their businesses completely.

While that last cohort has not been a significant factor in the recent past, it has started to increase in volume. However, based on current trends, the operational, regulatory, technology and personnel issues that all RIAs are facing are only going to become larger, more complex and costly to manage.

These issues are becoming the number one business challenge that advisors are actively considering as they make their future strategic plans. Ultimately, what these deals are telling us is that for a majority of the industry, regardless of size or where they are in their lifecycle, most are in need of a well-resourced partner that can provide a better client experience, more services, operational excellence, and a growth engine while creating a career path for their loyal staffs and a more client-focused future for themselves.

The business of wealth management is simply becoming too complex, competitive and challenging. As a result, many firms are at an inflection point as to whether they double down on the investment in their firm to get to that next level, adding even more challenges to address with difficult operational and technology decisions to make, longer work weeks with more anxious late-night hours, as well as significant financial risk; or partnering with a firm that already has scale, a similar culture, a strong brand, and an in-demand service model. Ultimately, it comes down to either building it or joining it.

What else is going on?

Other themes we are seeing that are driving deal volumes are from older advisors who don’t want to exit just yet, they simply want out of their cumbersome back-office responsibilities. Additional concerns for sellers of all types continue to be focused on their potential partner. Does the Buyer enhance the client value proposition?

The status quo isn’t good enough for most firms to meet increasing client demands – clients are looking for more services, and preferably at lower cost. Sellers also want to know that buyers will be able to help them grow so that they can continue to expand their business, as well as agreeing to retain the seller’s staff and provide them with career development opportunities as well. Accordingly, the buyer has to have a stellar reputation and not be a financial engineer seeking to lay people off.

Clients want to know that they are going to still be working with “their” Advisor and team. Older selling shareholders are also typically not looking for an exit strategy (although that cohort as mentioned earlier has been increasing lately).

These advisors still want to work for 2-5 more years after the sale and want to offload back-office responsibilities in order to do more of the things they love, whether that be client service or business development.

These are just a few of the key observations we have garnered that are contributing to the increasing volumes that promise to make 2021, yet again, another record year in RIA M&A deal making.

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