Industry Expert Roundtable Explores RIA M&A In Depth

Fidelity, Republic, Robertson Stephens And Former Pershing Executives Share Insights On Valuations, Activity, Success In Current Markets, Integration And Predictions For 2023

Julius Buchanan,
Managing Editor,
Wealth Solutions Report

As the wealth management industry examines third quarter results for M&A activity, Scott Slater, Vice President, Practice Management and Consulting at Fidelity Clearing & Custody Solutions, moderated a roundtable on Tuesday presenting expert views on the RIA industry titled “Wealth Management M&A Trends in a Volatile Market Environment.”

Slater’s virtual roundtable via Zoom brought together Mark Tibergien, former CEO of Pershing Advisor Solutions, Raj Bhattacharyya, CEO of Robertson Stephens and Peter Nesvold, Partner at Republic Capital Group for an informative discussion including the current status and trends for M&A, issues for sellers to consider and a glimpse of what 2023 holds in store.

Where’s The RIA Industry Going?

First the panel addressed the question of where the RIA industry is going, to which Bhattacharyya brought up the surprising fact that for the past 41 weeks, on an annualized basis, the 60/40 portfolio showed its worst performance in almost 100 years.

While noting that the correlation of stocks and bonds created a difficult year for clients, Bhattacharyya stated, “It’s important to remember that we’ve been in scarier times in the recent past,” comparing current markets to the 2008 and 2001 crises.

“What’s important to remember is that in every one of these situations a properly constructed portfolio, managed by an advisor, that takes into account the client’s wealth plan, has stood the test of time,” Bhattacharyya concluded. “I think the RIA model comes out even stronger when the markets are challenging.”

500 openings during the pandemic!

Nesvold pointed out that over 500 RIAs opened during COVID, and “in terms of numbers have been able to thrive despite what we’re seeing in financial markets.”

Tibergien said, “The business of wealth management couldn’t be better,” pointing out the “oversupply of clients and an undersupply of people who provide advice.” Due to this talent shortage, he sees compensation costs rising within firms, along with “overhead costs rising as fast as the direct expenses within firms.”

Trends In Acquisition Activity And Valuations

Slater noted that valuations currently remain high for RIAs, with deal numbers up 25% year-to-date largely due to an increased number of transactions with assets under $500 million, while total assets under management are down about 10% through the third quarter.

Nesvold compared wealth management M&A activity, which continues to increase, with M&A volumes globally for all industries, which were down about 30% for the first half compared with 1H21. “We’ll probably see an optical year-over-year decline [in wealth management M&A], but still off of a very high base and setting up continued strength into 2023.”

Nesvold gave several reasons for continued RIA deal strength including private equity funding, which introduces professional buyers that don’t get caught up in market timing, and demographics. “These deals are going to happen simply because of demographics.”

The valuation shoe hasn’t dropped yet

“In terms of valuation, we haven’t seen that shoe drop yet,” said Nesvold. “Perhaps multiples have come down a little bit, but the clearing price, for the most part, has not. What I am seeing a bigger impact on is EBITDA.”

Nesvold explains that buyers are placing emphasis on marking to market EBITDA and cash flows, which are closely related, based on current revenues and assets under management. “That’s your new baseline off of which to bid.”

Fit is everything

Slater added that serial acquirors are becoming much more selective about what they’re buying and the fit of the acquiree, to which Bhattacharyya responded that his firm and others place strong focus on the fit of the RIA.

“Aggregation for aggregation’s sake is not going to continue very much longer,” said Bhattacharyya.

What Are Successful Sellers Doing?

Tibergien stated that two common driving forces are distinguishing firms that succeed in the current challenging environment: “They have a niche focus, meaning that they can define the market, or they have a technical expertise.”

Not necessarily a good client

According to Tibergien, niche-focused firms build a community of clients based on a set of  common characteristics, for example, business owners in transition or professional practitioners, while examples of technical expertise include philanthropy, ESG or estate planning.

“The key is that the firms that are able to position themselves clearly … tend to be growing faster than those that look at anybody who can fog a mirror as a prospect,” Tibergien said.

Nesvold added, “If there’s one piece of advice I could give RIAs in how to be successful during a market like this, it’s to reach out proactively to your clients… People are nervous. People are scared… If you don’t call them, someone else will.”

A Smooth Integration

According to Bhattacharyya, the two most important factors for a good integration are alignment of culture and fit. “Aligning the culture of two firms is what will create a better 1 + 1 = 3, because otherwise it … is just an aggregation for aggregation’s sake versus one firm.”

“There is no good culture or bad culture,” said Bhattacharyya. “The selling firm should recognize that there are different types of firms out there on the buyer’s side and they need to figure out who they are and where they want to be post the transaction date.”

Bhattacharyya also noted, “The reason you’re selling has to be aligned with why the buyer wants to buy you. It’s really important because otherwise you could end up with a very cross-purpose situation.”

Tibergien agreed that there is no “good” culture, and RIAs should look instead for a compatible culture and a good career path for advisors.

He also cautioned that “‘succession’ is often a misnomer because many of the advisors who are selling aren’t looking for a succession plan, they’re looking to avoid creating a succession plan by selling the problem to somebody else. Just to be clear, that’s an exit plan, not a succession plan.”

Incentivize them to stay!

Nesvold advises potential sellers to focus on the opportunities for the second generation of employees – those who have been with the firm for many years and will no longer have an equity opportunity – to ensure they are incentivized to stay with the firm.

In addition, Nesvold emphasizes that sellers should focus on the benefits to clients from the proposed sale.   

Predictions For Next Year

Tibergien expects RIA M&A to continue apace in 2023. “Some buyers are over-leveraged and not able to execute on deals, and the stronger buyers will emerge, and my full expectation is that some of the consolidators will start consolidating with others.”

Too much leverage

“There’s probably a decent chance that somebody’s going to breach covenant somewhere over the next 12 months because there was so much leverage going into these deals,” said Nesvold. “I think we’ll start to see a modest decline in transaction volumes, but I think people will still be pleasantly surprised with how resilient the industry is.”

Bhattacharyya added, “Consolidation will be good for the client. The biggest beneficiary of what’s going on in our industry is advisors are able to bring better resources across investments, across planning, for their clients.”  

Julius Buchanan, Managing Editor at Wealth Solutions Report, can be reached at

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