There’s been a wave of consolidation within the registered funding advisor house during the last a number of years. For instance, final month broke the document for merger and acquisition exercise within the RIA house, in accordance with DeVoe & Firm. 12 months-to-date via Nov. 1, such offers have been up 12% in comparison with 2023.
This tempo of exercise will probably maintain up for the foreseeable future, with market analysis agency Cerulli Associates projecting that RIA acquisition exercise will attain $3.8 billion over the subsequent 5 to 10 years, stated Stephen Caruso, affiliate director of wealth administration, with the agency.
A latest Cerulli report discovered that the share of RIAs affiliated with consolidators grew from 6% in 2018 to 14% final yr. Throughout the identical interval, RIA consolidators’ AUM grew by 10 proportion factors to account for 18% of the RIA channel’s AUM, or $1.5 trillion.
A number of tendencies are driving this, together with the actual fact there are extra consumers out there at the moment than there have been 5 years in the past. As well as, lots of the consumers are beginning to develop a better suite of companies to help the advisors they purchase and assist them get extra shoppers. Caruso introduced up examples of Artistic Planning and Hightower as companies at present on main acquisition sprees who’re giving advisors entry to belief and property planning, accounting companies and tax planning companies, amongst different assets.
“The most important takeaway for us from this analysis is that RIAs are very a lot within the alternative to be acquired,” Caruso stated.
“These companies are actually perpetuating the suite of companies that encompass the advisor, making them extra aggressive out there and giving them the assets to be stronger than they’d be individually. And as they develop these suites of companies, the advisor has broader capabilities than ever earlier than and that perpetuates the competitors for shoppers within the RIA house. As companies get scale, they should differentiate from their fellow consolidators to accumulate RIAs and make these alternatives for brand new consumer acquisitions that rather more fruitful.”
Cerulli’s surveys discovered that built-in know-how platforms, compliance steering, succession planning, advertising methods and buying and selling and operations help have been among the many prime companies provided by consolidators that RIAs discovered enticing. For instance, 58% of surveyed advisors indicated that compliance steering and ongoing help are probably the most precious companies consolidators present, whereas 55% pointed to built-in know-how platforms.
“We’re actually seeing advisors check out massive RIAs and acknowledge worth. They’re seeing precious service choices from the power to leverage a broader know-how platform to incorporating some advisor succession planning to having ongoing operational help,” Caruso stated. “Additionally, that branding and advertising is massively essential. A few of these massive consolidators, you have a look at their common advertising price range and the power to advertise their advisors and their model, and all of it helps drive that new consumer acquisition for particular person advisors on the bottom.”
About 50% of surveyed RIAs pointed to advisor succession planning as a prime consolidator promoting level. Cerulli discovered that just about 74% of RIAs have a look at succession planning or potential exit methods when deciding whether or not to affix a big RIA platform or aggregator, and 35% take into account it a significant component in such selections. The agency estimates that 37% of at the moment’s RIAs, or about 31,000 advisors, will retire over the subsequent decade, creating the necessity to transition as much as $2.7 trillion in property. But 26.7% of RIAs stay uncertain what the transition plan will entail when it comes time for them to retire.
RIAs’ essential issues about partnering with consolidators included a lack of autonomy, a discount in total independence, transition operations, consumer resistance and income misplaced through the transition. Nonetheless, Cerulli concluded that RIAs are keen to sacrifice a few of their autonomy in the event that they really feel becoming a member of a consolidator will finally profit their enterprise.
Cerulli’s report was based mostly on responses from over 2,000 monetary advisors aggregated throughout a number of surveys carried out all year long.
