MarshBerry: Retirement M&A Up in First Half, Bucking Overall Trend

As it turns out, the highly consolidated retirement plan advisement space still has room to run, even in the face of high interest rates and market uncertainty, according to a mid-year mergers and acquisitions wealth advisory update from MarshBerry.

Retirement-related transactions were up 20% year-over-year through June, an increase to 18 deals as compared with 15 last year, according to the consulting firm’s “M&A Trends” report. The dealmaking happened even as the generally more active consolidation among wealth management advisories has “levelized,” in part due to the impact of higher capital costs and access to debt financing, MarshBerry wrote.

When looking at total dealmaking, the consultancy reported an 11% year-on-year drop to 136 transactions. That depressed dealmaking mimics recent reports by other consultancies, including a report issued recently by DeVoe and Co. declaring the biggest drop in retirement investment advisory dealmaking in nine years.

According to MarshBerry, the majority of retirement deal activity was done by insurance brokerages looking to add to their employee benefit offerings, including aggregators OneDigital, NFP Corp. and Hub International Ltd.

But in a new trend in what MarshBerry called “non-traditional” acquirers, wealth managers Carson Group and Savant Wealth Management took things in the other direction, acquiring retirement-focused firms to add to their workplace and individual retirement plan advisement capabilities. There was also a 2022 deal in which MAI Capital Management LCC acquired West Point Business Group to add specialized retirement plan consulting, launching MAI Retirement, and Merit Financial Advisors acquired Allegiance Retirement Solutions Inc. in the same year.

“When you think about how high-net-worth, or even ultra-high-net-worth family offices, service their clients, they are providing a lot of executive services like executive education, executive compensation plans and sometimes even advising business owner on transactions,” says Rob Madore, a vice president at MarshBerry. “It makes a lot of sense to connect over to the retirement world and acquire businesses that have 100, 200 or 500 retirement plans, which means, at a minimum, 100, 200 or 500 executives—and typically, their closely held businesses.”

Sticky Business

Madore says the margins and “stickiness” of business is better in wealth management and private client services than it is in retirement consulting. But if a wealth manager can bridge the gap between the two, there are many business benefits that are driving a longer-term shift in wealth management practices.

“The overall wealth management industry over the next 10 years is going to change pretty drastically, not just from a succession perspective, but from the overall wealth transfer across the country,” he says. “Being able to reach into those retirement plans and service employees at a deeper level, where you become the brand long before they have the assets, it positions you really well as they flow from the Baby Boomers down to the Millennials.”

Madore equates the shift to the large wirehouses from more than 30 years ago, who ignored smaller accounts with the assumption they would return for services when they were larger. Instead, he notes, independent RIAs emerged to serve those plans and increased in size and competitive advantage over the years.

The insurance brokerage firms active in retirement dealmaking also continued their push into wealth advisories, according to MarshBerry. Of the insurance firms engaged in dealmaking, 70% offer wealth advisory services alongside retirement plan advisement and, according to the researchers, are in a better position than those firms only focused on retirement.

This group of acquirers [with both retirement and wealth] has a meaningful head–start with developed and proven strategies for acquiring and integrating wealth firms into their core businesses,” the consultants wrote. “Others are playing catch-up or still sitting on the sidelines waiting to make their play.”

PE Still Here

Private equity is also staying active in acquisitions, according to the consultancy. PE backed 65% of all the wealth advisory transactions in the first half of the year, as firms look to capture the recurring revenue and high retention of wealth advisories. Even with tight credit markets, these firms tend to have access to debt capital, according to MarshBerry.

“Private equity is primarily interested in finding an area where they can follow a formula to create value,” Madore notes. “The RIA and retirement consulting industries have a few attractive components: consistent, fee-based revenue that scales as a firm grows; strong asset growth; a generally fragmented industry presenting a large inorganic growth opportunity; and the ability to create major growth or synergies within acquired businesses.”

Overall, MarshBerry expects dealmaking to continue into 2023, if at a bit more tentative pace as compared to prior years.

“While the leaderboard has changed, you still see a lot of the same familiar names,” Madore says. “I would not expect that to change drastically in the future. But it is worth noting that, over time, as these businesses scale, they are becoming a little pickier about the type of businesses they are acquiring, and they are becoming more selective on where these businesses are.”