In addition to providing custodial, operational and trading support to registered investment advisors (RIAs), Schwab Advisor Services also tracks industry-wide information on mergers and acquisitions (M&A) activity in the RIA space.  Schwab recently announced RIA M&A results for the first half of 2011, reporting a substantial jump in the amount of assets under management (AUM) that changed hands in the first half of this year. 

We sat down with David DeVoe, managing director of strategic business development for Schwab Advisor Services, to get a better understanding of trends and market dynamics impacting the RIA M&A landscape. 

Q: What are the trends influencing RIA M&A activity so far this year?
We saw strong deal activity in the first half of 2011, driven by four main trends in the RIA M&A market.  

First, RIA principals continue to increase their sophistication in navigating the M&A market. A merger or acquisition has become more than just a way to acquire assets or clients.  Deals also can help a firm add new services and specialized knowledge in areas such as trust and accounting, expand a firm’s geographic footprint or bring on a successor as part of a principal’s succession plan.  Principals are combining this strategic approach with their growing knowledge of M&A fundamentals to accelerate their achievement of strategic business goals through M&A.

With many RIA principals approaching 55 years of age and close to 30% over the age of 60¹, the need for succession planning is also an M&A driver.  As RIA principals near retirement, increased M&A will naturally occur and many are looking to M&A as a critical component of their succession plan.

The return of private equity and consolidators to the M&A market is the third key driver of RIA M&A.  It’s no surprise that RIAs bring value and have demonstrated success.  According to Schwab’s 2011 RIA Benchmarking Study, RIAs ended 2010 with revenue and assets reaching all-time highs. Private equity firms and consolidators are showing renewed interest in investing in this space, driving M&A activity. 

Lastly, banks are beginning to reengage in M&A².  In the early 2000s, many banks were involved in RIA M&A transactions but over the last several years we saw a steady decline in their activity, largely driven by their own set of challenges including cultural fit.  In the first half of 2011², we saw banks emerge from the sidelines and show a renewed interest in M&A activity after a several year absence from the market.

Q: What’s your outlook for RIA M&A?
We had a strong first half of the year and we expect to see M&A activity steadily rising over the next five to seven years.  We don’t feel that any short-term market volatility will have much of an influence on M&A but of course, in the case that is the volatility is sustained, the outlook can change.

Stay tuned for more updates from Schwab Advisor Services on RIA M&A activity throughout the year!

 

Methodology for 2011 RIA Benchmarking report.

• Responses were collected during February and March of 2011.
• All information contained in the 2011 RIA Benchmarking Study report is provided for general informational purposes only and is not a recommendation of any business enterprise or investment advisory practice management technique, strategy or practice reported on or described.
• All data is self-reported by study participants and is not verified or validated. Each participating advisory firm submitted only one set of responses.
   

1. Charles Schwab Independent Outlook Study, 2009
2. Schwab Advisor Services Reports Independent RIA Mergers and Acquisitions Activity for First Half of 2011.

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