Over the past decade, the mergers and acquisitions (M&A) spree among registered investment advisory (RIA) firms has been nothing short of remarkable. However, this upward trend experienced a setback last year due to high interest rates.
The consulting firm and investment bank, DeVoe & Co., conducted a comprehensive analysis and found that there were 251 transactions in 2023, representing a 5% decrease from the 264 transactions recorded in 2022. This decline marked the end of nine consecutive years of record-breaking M&A activity in the RIA industry.
According to DeVoe, the increased interest rates and other macroeconomic factors took a toll on RIA buyers. The higher rates led to elevated capital costs for potential buyers, resulting in a slowdown in transaction volume.
Despite the slump earlier in the year, there was a resurgence of activity in the fourth quarter. However, this surge was not enough to offset the decline experienced in earlier periods.
The surge in RIA M&A activity over the past decade can be attributed to various factors including demographic shifts, market trends, and economic developments. A significant driver has been the retirement of baby boomer advisors who have decided to sell their firms after enjoying a prolonged bull market. This trend has consequently led to an increase in the assets under management for acquiring firms. Additionally, private-equity firms have shown great interest in the RIA sector, primarily drawn by its consistent returns in wealth management. Moreover, RIAs have been actively pursuing greater scale due to the rising costs associated with compliance and technology. In fact, DeVoe reports that almost 90% of RIA M&A transactions in 2023 were carried out by repeat acquirers.
Despite the temporary setback caused by high interest rates, RIA M&A activity remains a prominent feature of the industry. With ongoing shifts in the market and evolving economic conditions, the coming years are likely to witness renewed momentum in this area.
Acquisitions Thrive in the RIA Sector
Wealth Enhancement Group Leads the Pack
According to industry expert David DeVoe, last year saw a surge in mergers and acquisitions in the Registered Investment Advisor (RIA) sector. Wealth Enhancement Group emerged as the top acquirer, with an impressive 16 deals under their belt. Following closely behind were Mercer Advisors and CapTrust, each with nine deals of their own. Notably, a total of eleven firms engaged in six or more transactions in the same period.
A Promising Outlook for the RIA Market
While 2023 experienced a slight slowdown in activity, industry professionals like DeVoe view the overall performance as positive. Despite a dip from the previous year, 2022 still boasted transaction volumes that were nearly triple those of five years ago. The RIA sector continues to attract both eager buyers and motivated sellers, signaling a thriving marketplace. Moreover, DeVoe remains optimistic about the future prospects for the industry. Should the Federal Reserve opt to cut rates later this year, the macroeconomic environment could become even more favorable, further stimulating growth.
Buoyant Market Anticipated
As we move into 2024, DeVoe predicts an active RIA M&A landscape that shows no signs of slowing down. With succession planning needs and an evolving competitive landscape, the stage is set for continued robust activity. DeVoe forecasts a range of 240 to 270 transactions in the coming year. Additionally, he believes that declining interest rates will contribute to an uptick in deal-making.
The RIA sector is clearly positioned for a dynamic future, offering fertile ground for both sellers and buyers looking to build firms of greater scale and reach.