RIA gold rush fever is over: Report

RIA gold rush fever is over: Report
'What’s missing in most cases of deals is that firms aren’t integrating the RIAs they are buying,' Mark Tibergien says.
MAR 20, 2024

Mergers and acquisitions of registered investment advisors continued at a strong, if not spectacular pace, in 2023, with RIA buyers and sellers contending with a turbulent stock market at the start of the year and the increased cost of deal-making as a result of rising interest rates, according to an annual survey by Advisor Growth Strategies, an M&A advisory and management consulting firm.

Advisor Growth Strategies tracked 41 closed transaction in 2023 compared to 48 a year earlier, a decline of almost 15%.

But more important than that, the RIA dealmaking market has turned, according to the report.

Independent broker-dealers, including LPL Financial, Commonwealth and Raymond James, have become significant buyers of RIAs as they focus on gathering assets and preventing financial advisors from bolting to the competition.

Focus Financial Partners, a leading buyer of RIAs and one of the first significant aggregators, went private and is in the midst of an internal overhaul and reorganization, and Corient, CI Financial's US RIA business, was recapitalized through a massive infusion, delaying a potential initial public offering.

Meanwhile, Goldman Sachs' 2019 acquisition of United Capital Financial Advisors turned out to be a bust, with Goldman selling the remains of United Capital to Creative Planning, a giant RIA. This transaction calls "into question the possibility of a large strategic [buyer] stepping in to provide ultimate liquidity, for now," according to the report.

"The early days in the gold rush of the RIA space are in the past, but the competition for new territory is just beginning," according to the report, which is titled Life After the Gold Rush.

The shift in the RIA M&A landscape examined in the Advisor Growth Strategies report was to be expected, according to industry participants.

"The RIA business model started in the 1940s, so clearly we are in the middle innings," said Mark Tibergien, who retired as CEO of Pershing Advisor Solutions in 2020 and is now a management consultant. "There's a long way to go but the arc appears to be leveling off a little bit. Much of the M&A activity is a combination of fresh capital coming in to the industry and old owners selling out. That's a catalyst.

"What’s missing in most cases of deals is that firms aren’t integrating the RIAs they are buying," Tibergien said. "The next wave in the business is consolidating and integrating, just like Focus Financial Partners is doing now. The failure to integrate will always impede growth. We can expect to see the consolidators and aggregators consolidate, potentially those large firms that share business lines, such as retirement plans or the multifamily office market."

"I wouldn’t want to be starting right now and doing my first M&A transaction," said Kay Lynn Mayhue, president of Merit Financial Advisors, a hybrid RIA that works with $10 billion in client assets. "That would be a strategic disadvantage.

"Take technology, for example. It took us 2½ years to build our tech stack, and it's evolving," Mayhue said. "I couldn't imagine starting from zero. I would not want to be competing against us or other experienced firms. This is a market that is challenging to enter right now."

Merit Financial Advisors has done 30 deals, she added.

One aspect of RIA M&A that's holding steady, according to the report, is firms' valuations, or their fetching price.

RIAs typically trade at a multiple of EBITDA, or earnings before interest, taxes, depreciation and amortization, a cash-flow metric. According to the report, the median adjusted EBITDA multiple in transactions in 2023 was 9.9, or just a notch lower than the prior year, when the industry had a slightly higher multiple of 10.

However, the median EBTIDA multiple in 2020 was 8, so last year's fears spurred by rising interest rates and the bad stock market in 2022 did not erode the value of an RIA in any substantial way.

"Valuations remained stable, and deal structures remained generally favorable to sellers," according to the report.


Latest News

LPL building out alts, banking services to chase wirehouse advisors, new CEO says
LPL building out alts, banking services to chase wirehouse advisors, new CEO says

New chief executive Rich Steinmeier replaced Dan Arnold on October 1.

Franklin Templeton CEO vows to "do what's right" amid record outflows
Franklin Templeton CEO vows to "do what's right" amid record outflows

The global firm is navigating a crisis of confidence as an SEC and DOJ probe into its Western Asset Management business sparked a historic $37B exodus.

For asset managers, easy experience is key to winning advisors' businesses
For asset managers, easy experience is key to winning advisors' businesses

Beyond returns, asset managers have to elevate their relationship with digital applications and a multichannel strategy, says JD Power.

Why retaining HNW clients ultimately comes down to one basic thing
Why retaining HNW clients ultimately comes down to one basic thing

New survey finds varied levels of loyalty to advisors by generation.

Stocks drop as investors digest Microsoft, Meta earnings
Stocks drop as investors digest Microsoft, Meta earnings

Busy day for results, key data give markets concerns.

SPONSORED Out with the old and in with the new: a 50% private markets portfolio

A great man died recently, but this did not make headlines. In fact, it barely even made the news. Maybe it’s because many have already mourned the departure of his greatest legacy: the 60/40 portfolio.

SPONSORED Destiny Wealth Partners: RIA Team of the Year shares keys to success

Discover the award-winning strategies behind Destiny Wealth Partners' client-centric approach.