Convergence Dominates Financial Advisor M&A Market

Financial Advisors


The expected blending of wealth, retirement and benefits in the workplace, despite unprecedented interest rate hikes and rising costs of capital, has led to strong interest from PE firms and financial advisors, especially retirement planning. Demand for advisors continues. The Wise Rhino Group report for Q2 2023 finds that consolidation is the goal of scaled companies, while other aggregators are still looking to scale.

But, as Assensus CEO David Musto quipped at a recent industry conference, “Size sucks. Size is nothing without benefits.”

RPA M&A deals started to heat up in 2017, with 8 M&A deals rising to 74 last year, compared to 96 RIA deals in 2017 and 273 in 2022. With an estimated 13,000 of his RPA specialists (defined by Cerulli as those who earn 50% or more of their income from defined contribution plans) and a total of 288,000 active financial advisors, the RPA trading market is relatively Active. RPA’s valuation is still high at about 11 times his EBITDA, but with less upfront funding. Each deal has an average of eight buyers, but WRG founder and CEO Dick Dalian said buyers can vary from deal to deal.

Interest in RPA is growing due to the hope and promise of serving participants and generating revenue. Plan sponsors are becoming increasingly aggressive in allowing or asking providers and advisors to provide wealth and benefits guidance and advice to their employees. Also, amid increasing competition between recordkeepers, RPAs and RIAs, his CEO of the top three DC recordkeepers that provide wealth services said a 1% conversion rate is a home run, giving advisers more money. I pointed out that I would leave a chance. A leading consulting firm said more and more PE firms, including some sovereign wealth funds, are interested in the RPA market based on the 1% conversion opportunity.

While a few large RPA companies are focused on integration and wealth, others continue to climb that mountain. “RPA aggregators may need to hire specialized managers to build and run,” Darien said. CAPTRUST CEO Fielding Miller added, “One of the most important benefits of scale is the ability to attract top talent.”

WRG estimates that there are currently about 100 RPA buyers who:

  • Current RPA Aggregator.
  • An emerging RPA aggregator.
  • RIA Aggregator.
  • broker-dealer;
  • private equity; and
  • strategic buyer.

RIA aggregators are starting to look more closely at DC plans and RPA firms, led by Creative Planning’s acquisition of Rockton’s retirement counseling unit in late 2021 and the Carson Group’s recent acquisition of Northwest Management. .

As more RPAs start leveraging participants effectively at scale, it will be harder for independent companies to compete, Darien said. Many of the big RPA companies have already been acquired, but Darien said there are still 50 groups with revenues of at least $5 million, and he believes 1,000 attractive targets won’t join the first wave. I observed that it selects .

RPAs and RIAs are the second of four stages of consolidation outlined in the 2002 Harvard Business Review article, “The Consolidation Curve,” in which AT Kearney consultants surveyed 1,345 mergers in various industries. is at the stage of

In Stage 2 (Scale), major players emerge rapidly and acquire competitors, with the top three players gaining 15-45% market share, integrated skills, core culture, retention, and scalable IT platforms. polish. In Stage 3 (Focus), the surviving companies are looking to expand their core business and aggressively outperform their competitors, with the top 3 (out of 5-12 players overall) having a market share of 35-70 grow to %. This stage involves mega deals and large deals, where the surviving companies ruthlessly attack underperforming companies, especially start-ups. Profit is key, as is avoiding an all-out attack on other big companies.

The record holders are in the middle of Stage 3, with five strong 401(k) record holders and 10-12 significant competitors. When RPA aggregators start buying other aggregators, it marks the next step.

Convergence has traditionally been about providing wealth, retirement and benefits advice and services in the workplace, or looking for ways to sell and service the exploding micro-enterprise and start-up markets. , refers to the integration of ideas and practices from the institutional market to the retail sector.

But that could also mean consolidating registries, advisors and money managers. Firms closest to their customers have the most power, while asset managers furthest away have the greatest profit margins. The Record Manager has, and will continue to, seek to provide participants with advisory services on their own and jointly created investments. Advisors are leveraging investment products to increase revenue while partnering with fintech firms such as Bestwell to leverage PEPs to provide outsourced recordkeeping services to their clients.

As RPA companies grow, they become more attractive to PE companies and RIA aggregators, as well as potential targets for record keepers. Stage 2 of the integration curve is Stage 3, before culminating in the fourth and final stage (Balances and Alliances), where the top three companies with 70-90% market share focus on forming alliances as they grow. only preparations for a full-scale war in more challenging.

The risks to RPA are getting higher and higher. The emergence of new competitors has made competition even more intense. Only a few have the talent, capital and ability to win.



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