Schwab Finds Seller’s Market Continues for RIA Firms

Deals in the RIA merger and acquisition market continue on a consistent year-over-year pace, according to the latest industry data compiled by Schwab Advisor Services. Independent RIA firms are thriving on the whole, Schwab notes, and the independent investment advisory model remains one of the fastest-growing segments of the financial-services industry.

According to Schwab, year-end 2014 data shows the RIA deal pace has remained largely consistent, with 54 completed transactions in 2014, matching the total deals completed in 2013. Average deal size ticked upward, however, growing 9% from the previous year, with transferred assets under management (AUM) totaling $47.4 billion in 2014, versus $43.6 billion the year before.

Buyer types in merger or acquisition deals have also remained consistent over the past two years, Schwab says, with “strategic acquiring firms” and fellow RIAs representing the majority of purchasers. Strategic acquiring firms were the leading buyer category in the first half of 2014, but RIAs inched ahead by year-end, closing 41% of the deals in 2014, compared to 38% closed by strategic acquirers.

“It remains a seller’s market for RIAs, and the industry is in a position of strength as firms grow in value and more advisers and acquirers continue to be drawn to the independent model,” says Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “We are seeing more firms being strategic about their growth, and while many remain focused on M&A as part of that strategy, they are being selective about opportunities and are very mindful of additional factors such as cultural and philosophical fit, to ensure a merger or acquisition is beneficial and sustainable over the long term for their firm and their clients.”

Results from the earlier Schwab’s 2014 RIA Benchmarking Study also indicate that nearly 25% of the fastest-growing firms are looking to make opportunistic acquisitions to bolster their growth. By achieving scale through organic growth and acquisitions, the fastest-growing firms reported three times more growth than the average firm (see “Executing Firm Growth”).

“The steady level of M&A activity we’ve seen over recent years underscores the growth and maturation of the industry,” Beatty adds. “RIA founders and principals are more focused than ever on creating legacy firms that advance and sustain their firm’s culture and values. While many firms seek merger or acquisition opportunities as a means for growth, we haven’t seen the spike in consolidation that industry observers have predicted. Instead, firms are considering valuation and completing deals that best address their goals over the long term.” (See “Old-School Practices May Drag Down Valuation.”)