There’s been a wave of consolidation in the registered investment advisor space over the last several years. For example, last month broke the record for merger and acquisition activity in the RIA space, according to DeVoe & Company. Year-to-date through Nov. 1, such deals were up 12% compared to 2023.
This pace of activity will likely hold up for the foreseeable future, with market research firm Cerulli Associates projecting that RIA acquisition activity will reach $3.8 billion over the next five to 10 years, said Stephen Caruso, associate director of wealth management, with the firm.
A recent Cerulli report found that the share of RIAs affiliated with consolidators grew from 6% in 2018 to 14% last year. During the same period, RIA consolidators’ AUM grew by 10 percentage points to account for 18% of the RIA channel’s AUM, or $1.5 trillion.
Several trends are driving this, including the fact there are more buyers in the market today than there were five years ago. In addition, many of the buyers are starting to develop a greater suite of services to support the advisors they acquire and help them get more clients. Caruso brought up examples of Creative Planning and Hightower as firms currently on major acquisition sprees who are giving advisors access to trust and estate planning, accounting services and tax planning services, among other resources.
“The major takeaway for us from this research is that RIAs are very much interested in the opportunity to be acquired,” Caruso said.
“These firms are really perpetuating the suite of services that surround the advisor, making them more competitive in the market and giving them the resources to be stronger than they would be individually. And as they develop these suites of services, the advisor has broader capabilities than ever before and that perpetuates the competition for clients in the RIA space. As firms get scale, they need to differentiate from their fellow consolidators to acquire RIAs and make those opportunities for new client acquisitions that much more fruitful.”
Cerulli’s surveys found that integrated technology platforms, compliance guidance, succession planning, marketing strategies and trading and operations support were among the top services offered by consolidators that RIAs found attractive. For example, 58% of surveyed advisors indicated that compliance guidance and ongoing support are the most valuable services consolidators provide, while 55% pointed to integrated technology platforms.
“We are really seeing advisors take a look at large RIAs and recognize value. They are seeing valuable service offerings from the ability to leverage a broader technology platform to incorporating some advisor succession planning to having ongoing operational support,” Caruso said. “Also, that branding and marketing is hugely important. Some of these large consolidators, you look at their average marketing budget and the ability to promote their advisors and their brand, and it all helps drive that new client acquisition for individual advisors on the ground.”
About 50% of surveyed RIAs pointed to advisor succession planning as a top consolidator selling point. Cerulli found that almost 74% of RIAs look at succession planning or potential exit strategies when deciding whether to join a large RIA platform or aggregator, and 35% consider it a major factor in such decisions. The firm estimates that 37% of today’s RIAs, or about 31,000 advisors, will retire over the next decade, creating the need to transition up to $2.7 trillion in assets. Yet 26.7% of RIAs remain unsure what the transition plan will entail when it comes time for them to retire.
RIAs’ main concerns about partnering with consolidators included a loss of autonomy, a reduction in overall independence, transition operations, client resistance and revenue lost during the transition. However, Cerulli concluded that RIAs are willing to sacrifice some of their autonomy if they feel joining a consolidator will ultimately benefit their business.
Cerulli’s report was based on responses from over 2,000 financial advisors aggregated across multiple surveys conducted throughout the year.
