Inside the Deal

A global pandemic. Market volatility. Rising interest rates. Almost nothing seems to be stopping the rampant merger and acquisition activity in the workplace retirement advisory and wealth management space.

In June alone, PLANADVISER reported on acquisitions of adviser firms that manage billions of dollars by SageView Advisory Group, Hub International Ltd., OneDigital Investment Advisers LLC, NFP Corp. and Cetera Holdings, the last of which is an advisory network focused on the individual client space.

Experts have been predicting that the confluence of factors in the market—including the higher cost of borrowing money—would start to dent transaction volume. According to M&A consultancy Wise Rhino Group, deal flow in retirement and wealth had a modest decline last year, but, through the first half of this year, came in strong “as private capital continue[d] to chase the independent retirement and wealth advisory space.”

But acquisitions do not necessarily mean sustained success and growth for the acquired firm or its new parent. How are the aggregators managing all this inflow? And, perhaps more important, how are they seeking to make the deals stick for the long term?

Joe DeNoyior, president of Hub Retirement and Wealth Management, in Chicago, says the answer is in the aggregator or broker/dealer identifying an advisory practice that is the right fit for that larger entity’s needs, but that is also one with a growth plan that will be fed and supported by joining its acquirer—in his case, Hub, with its network of retirement, wealth, insurance and employee benefit offerings. “By bringing those folks into our organization, does it allow them to continue to grow—even add fuel to their growth?” he says. “That is absolutely key for it to be a success.”

Expanding the Circle

DeNoyior came from the retirement plan advising side of the business, joining Hub in 2019 when it acquired his Washington Financial Group. 

Many acquisitions of retirement advisories—which, like DeNoyior’s WFG, often already have some wealth management—stem from a connection with or knowledge about the potential adviser target, with the acquirer and acquiree often being from the 401(k) circle.

OneDigital—which also has been rapidly expanding in recent years—too looks for partners that see the benefit of joining a larger firm that can help fuel their growth.

“We are very intentional, because we want to make sure that people joining our organization take advantage of the things we can provide and that would make them more effective and efficient,” says Carrie Ohm, vice president, corporate development at the company, in Leawood, Kansas.

Ohm, who spearheads OneDigital’s onboarding process, notes that not all deals survive. Often, it is within the 90-day vetting process that issues emerge that are a red flag to both sides. “Inevitably, as you get into the consummation of the deal—what we call the final diligence phase—people will show their true colors,” she says. “It takes somebody who understands the benefit of aligning with the bigger company and giving up some of the control. That’s not for everybody.”

Deal Architects

Ohm came to OneDigital from a career recruiting financial advisers and advisory teams. Leading the acquisitions team is a great fit, she says, because it has many components similar to those of recruiting teams that can help the business and effect further growth for both sides.

Even so, she cites the many “complexities that come along with the acquisition landscape.” In just the past two years, Ohm says, she and her team have worked on 23 deals in the retirement and wealth management division.

As a “deal architect,” Ohm says, the only rule of thumb is that no two deals are alike. “When you’ve seen one M&A deal, you’ve seen one M&A deal.”

To get through the large amount of deal volume, OneDigital has 35 people on its acquisitions team who begin work as soon as a letter of interest, or LOI, is in process. Once a deal is done, however, the team’s work begins, to fully integrate and set up the new business for success.

“One thing we’ve learned from the acquisitions we’ve done is that, if we rush the process, it’s likely to create issues either with the integration or with onboarding the teams and certainly could affect client retention,” she says.

At OneDigital, something it has only started doing in recent years is to identify an executive sponsor who will then partner with the acquired firm, Ohm says. “That person is charged with helping [the acquiree] find its way.”

“One thing we’ve learned from the ­acquisitions we’ve done is that, if we rush the process, it’s likely to create issues …”

Breaking Bread

Over the past year, Arthur J. Gallagher & Co. has built up both its retirement and financial wellness acumen with the purchase of advisory firm Buck, as well as F3 Companies, a turnkey wealth management provider.

Now, Gallagher is starting a push—largely in the western U.S.—of acquiring planners to provide participants with wealth management services, says Jeff Leonard, Gallagher’s financial and retirement services practice leader, in Rolling Meadows, Illinois. Leonard says he has a team that is “spread out geographically” and that is tasked with looking for acquirees in financial advisement that fit Gallagher’s needs.

“Culture is really important,” he says. “If [you’re] going to grow through acquisitions, then you need to have a great cultural fit [with the acquiree] so you’re not constantly banging heads. 

“I like to ask questions [about potential acquirees] such as, ‘Would you have this person over to dinner? Would you introduce them to your family?’”

Part of the fit, Leonard says, is finding advisory firms that are excited to take on the acquirer’s brand and ethos. That does not mean, he says, that it is “Gallagher’s way or the highway” but that they want a collaborative culture, with  pride in the brand and the capabilities of a national team.

To ensure that success, he says, they like to bring potential acquisition targets to Gallagher’s headquarters in Rolling Meadows, to “break bread.”

“I think it’s important for people to see us in our natural habitat,” Leonard says. “We want them to know what it’s going to be like from day one, before we close a deal. That’s really important to us.” 

Aggregating the Aggregators

According to Wise Rhino Group, the connection between retirement plan advisement and wealth management will only heighten in coming years.

“More wealth advisory firms will decide to partner with retirement plan aggregators,” the consultancy wrote in its Q2 2023 M&A report. “These wealth advisory firms are already routinely including retirement and wealth aggregators as prime partner candidates in their partner searches.”

That drive will also see the rise of more aggregators, along with more chances to get doing an M&A right—or wrong—according to the firm.

“Additional aggregators will emerge,” the firm wrote. “[Private equity] continues to love the advisory space, and new players continue to be attracted to the still fragmented verticals of retirement and wealth.”

That more crowded space will lead to winners and losers, depending on how successful they are, Wise Rhino notes.

“Certain leading scaled/executing aggregators will rise and dominate,” say Wise Rhino’s predictions. “There will be the emergence of a select number of ‘Meta’ firms. Most consolidated industries eventually reach a ‘balance and alliance’ stage, which looks like a classic oligopoly, with a small number of super-scaled Meta national firms. Think banks, insurance companies, investment consultants. Expect the same here, over time.”