Creativity Is The Key To Success In RIA M&A

Surging M&A Growth Spurs Creative Responses: Expanding The Market, ‘Acqui-hires’ And Deal Structures

It’s no secret the independent RIA channel has been the fastest-growing segment of the wealth management industry. According to Cerulli & Associates, from 2016 to 2021 the RIA industry’s assets under management grew at 15.2% annually. Research from McKinsey & Company indicates that more than 700 independent RIAs are launched annually, with many now comprising considerably larger teams than in the past. What is driving this activity and can it last?

Value In RIAs

The RIA channel benefits from low barriers to entry, a supportive ecosystem and no clear “winner take all” participants. An efficiently run RIA has tremendous upside, attracting the interest of active players with deep pockets, including private equity firms, pensions and family offices. Such favorable characteristics support the creation of new RIAs and fuel growth activities by the biggest firms.

This environment has led to unprecedented M&A demand with no signs of slowing. M&A activity remains strong both in terms of the number of deals and the value of those deals. However, valuation is no longer the only consideration in structuring an optimal outcome. Both buyers and sellers also look at succession issues, access to support resources and the need to attract the right talent to fuel future growth.

Getting Creative

Increased demand is now meeting increased supply, forcing potential acquirers to bring more to the table. Likewise, sellers are seeking new, innovative models to advance their businesses and differentiate themselves from the competition. Transactional creativity is showing up in three primary ways – expanding the market, “acqui-hires” or location tuck-ins, and creative deal structures – with some deals comprising a combination of the three.

Expanding The Market

Private equity (PE) firms have implemented some of the most innovative approaches, including looking at non-traditional investments. Rather than going after the dominant firms in their markets, PE buyers are casting a wider net. This strategy includes going down-market compared with traditional targets, spinning off wealth management divisions and evaluating other service models with a high probability of penetrating wealth management (e.g., tax, estate and 401(k)s).

Large PE-backed acquirers are also shifting focus and targeting firms with a specialty that brings a new skillset in-house, such as an accounting firm that has a wealth management arm.


There are also highly targeted approaches, which I call “acqui-hires,” in which an individual advisor or small team is tucked into an existing firm’s footprint to provide more depth. This could be accomplished through a traditional M&A deal or recruiting with eventual M&A that expands the RIA’s range of services and/or capacity.

Acquirers are exploring businesses that can deliver additional capabilities to their existing RIAs, such as firms that specialize in the small family office space, insurance solutions, 401(k)s or other areas that fill a gap in their service menu. They are seeking cross-business synergies that will drive the development of new lines of business. These deals are very accretive because they don’t always fall within the traditional deal structure but can add tremendous value if integrated thoughtfully.

Creative Deal Structures

When firms look beyond the typical RIA specializing in financial planning or investment management, the market is ripe for bespoke deals. And even when the firm is a traditional RIA acquisition target, rapidly changing capital markets have forced an inventive approach to deal structuring that is deal-specific and less reflective of macro trends.

These changes include the timing of cash payments, more equity compensation and more growth incentives to ensure shared success. Advisor Growth Strategies noted that the average transaction in 2022 contained more equity and contingencies than from 2019 to 2021.

Current deals creatively incentivize founders and ensure there is upside for other key contributors, such as NextGen talent, who want to build their careers by growing their book, expanding their business and becoming partners. Firms that fail to illustrate the upside available to contributors risk losing talented advisors to competitors who will incentivize and reward their productivity (e.g., acqui-hires).

This influx of creativity is a net positive for the RIA space. These adaptations offer a compelling lesson for buyers, sellers and industry observers: value creation extends beyond the basics. The M&A and business management function is becoming more professional and investors will continue to seek unique ways to compete.

Brandon Kawal is Principal at Advisor Growth Strategies, which works with RIAs on management consulting, transitions and M&A needs.

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