M&A Activity Among RIAs Remains Strong in Q2

Merger and acquisition activity among registered investment advisers went up slightly in the year’s second quarter, signaling a “stable, healthy M&A market,” according to consultancy DeVoe & Co. and Capital Group’s second quarter RIA M&A Deal Book report.

DeVoe and Capital Group reported 61 RIA transactions in Q2, making a total of 126 transactions in the first six months of 2024. The trend is toward a small increase in deals year-over-year as private equity funding and succession needs drive continued consolidation.

“Transaction activity continues to be driven by RIAs’ need to solve for succession, growth and scale,” the report’s authors wrote. “On the buyer side, established acquirers are being joined by new entrants, and both are typically backed by private equity. At the same time, the current high interest rate environment demands increased discipline from all participants.”

After a lackluster employment report released on August 2, many are forecasting an interest rate drop by the Federal Reserve in the near term. But with the presidential election looming in November, the report’s authors wrote that while 2025 is on track for steady M&A activity, “various market, economic or political developments” may change that trajectory.

The report’s authors also noted a trend toward new entrants being active, as opposed to the “usual suspects.” Such new firms that have been active in the first half of the year include Constellation Wealth Capital, Arax Investment Partners, Perigon Wealth Management and Miracle Mile Advisors.

Some of the deals so far in 2024 also involved firms building practices across wealth management and workplace retirement plan advisement. Wealth Enhancement Group recently told PLANADVISER it is nearing $5 billion in assets for qualified plan advisement, and Modern Wealth continues to add wealth shops after acquiring the $1.2 billion qualified plan advisory Beltz Ianni & Associates in March.

RIA Buyers

RIAs themselves have expanded their market share of acquisitions through 2024, according to the report, with their slice of the pie growing to 35% of deals, an increase from 23% back in 2021.

That growth has come as consolidators of RIAs and other purchasers, such as broker/dealers, insurance companies and banks, have lost market share through the first half.

Consolidators are still the dominant driver of the market, with 44% of market share through the first half, but that is a slight decline from 47% for all of 2023. Meanwhile, “other” buyers have made up 21% of the market so far in 2024, as compared with 24% in the full year 2023.

Buyers Helping Buyers

DeVoe and Capital Group noted that private equity continues to have an outsized role in driving deals, with three-quarters of transactions involving firms backed by private equity. However, a trend toward sub-acquisitions—acquisitions by firms that were previously acquired—has started to pick up, according to the authors.

Sub-acquisition deals made up 23% of all deals through the first half of 2024, the highest percentage since 2018, according to the report.

Such deals have been driven by RIA buyers such as Focus Financial Partners, Wealth Partners Capital Group and Emigrant Partners, who provide their affiliates with “acquisition capital, M&A expertise and sometimes even sourcing candidates.”

The authors also noted a return in minority investments to support deal-making. That said, they warned firms considering such an investment to “read the fine print on every deal,” as a “regrettable transaction is one where the seller feels like they sold a minority stake but gave up majority control.”

The DeVoe RIA M&A Deal Book is focused on transactions of $100 million or more in assets, which helps to screen out SEC-registered hedge funds, independent broker/dealers, mutual fund companies and “other companies that aren’t operating as traditional RIA firms.” It also avoids advisers joining RIAs, unless “there are important developments.”