7 ways independent wealth management firms are consolidating

By Tobias Salinger, FinancialPlanning.com - Wealth management M&A momentum is accelerating at the end of 2023, as the macroeconomic headwinds that threw dealmaking off its previous record-breaking pace recede into calmer air.

For an overview of industry M&A trends on the cusp of the new year, Financial Planning gathered the latest news involving firms like Osaic, Focus Financial Partners, Cetera Financial Group and Creative Planning and spoke with: Katie Bruner, the president of the holding company that owns SkyView Partners, an investment bank that provides advice and capital for registered investment advisory firms undertaking successions, acquisitions and refinancing; and Brent Brodeski, founder and CEO of Rockford, Illinois-based Savant Wealth Management, the No. 7 firm on FP's RIA Leaders ranking of the largest fee-only RIAs in the country with more than $17 billion in advisory assets. The seven updates and tips for financial advisors are below.

RIAs seeking financing should "prepare early and know your creditworthiness," Bruner said in an interview.

"A lot of potential borrowers come to us way too late in the game to secure financing successfully," she said. "Knowing how much you can qualify for is critical as well."

To see the latest wealth management M&A tips and news updates closing out 2023, scroll down the slideshow. For FP's list of 24 people who will shape the industry in 2024, click here. To get a roundup of FP's biggests rankings and analysis of the year, follow this link.

A look at the total numbers

The volume of deals is catching back up toward the record-breaking levels of the wealth management M&A marketplace before high inflation and interest rates and slumping stocks and bonds pushed down the number of transactions.

In the third quarter, deal flow jumped 32% year over to 86 transactions involving firms managing a combined $1.1 trillion in client assets, according to the latest report from investment bank and consulting firm Echelon Partners. That was the highest amount of transactions since early last year and the largest total for any third quarter tracked by Echelon.

"We attribute this increase to the continued influence of fundamental forces driving consolidation in the industry and to buyers and sellers gaining greater confidence in the macroeconomic environment relative to late 2022," the deal report stated. "Given these trends, Echelon anticipates that 2023 M&A activity will mirror the trend observed in 2020 and 2021: a relatively quiet Q2, followed by a strong rebound in activity in Q3, which is then exceeded by an even more active Q4."

For RIAs in particular rather than the total across any type of wealth management firm, the 4% decline in deal volume for the third quarter compared to the same period a year ago represented a smaller drop than the decrease of 15% in the second quarter, according to RIA M&A consulting firm DeVoe & Company. The volume of transactions has slipped by 9% year over year to 185 in the first nine months of 2023.  

"Overall M&A activity is considered 'healthy' by DeVoe & Company given the current industry and macroeconomic dynamics," the report said. "Without the pressure points of higher interest rates, uncertainty in the economic environment and volatility in the stock market, deal activity would likely be running at a faster clip due to seller interest in scale and the demographics of founders."

The numbers through a different lens

Skyview has received 280 financing requests amounting to $1.2 billion in requested conventional commercial loan capital for RIA M&A deals in 2023, which is a major jump from $850 million in 2022, according to Bruner. The firm has arranged 59 loans for $170 million in financing, and it's on pace to surpass last year's commercial bank capital raise by 10%.

"We oftentimes look at the amount of sourcing that we see coming through as a leading indicator of what we could potentially see in the next six to nine months," Bruner said. "Our expectation is we should see continued strength in the M&A market in 2024."

Creative Planning, Cetera, Choreo and Integrated bet on intersection of wealth and tax

In at least its second deal of the year acquiring an RIA that also provides tax services, Creative Planning acquired Wilmington, Delaware-based Daniels + Tansey, the firms said last week. Late last month, Cetera Financial Group's parent company completed the acquisition of tax-focused wealth management firm Avantax for $1.2 billion. In addition, Choreo purchased the wealth management arm of giant CPA firm BDO. RIA firm Integrated Partners also helped a top 100 accounting firm, Windes, launch its own wealth management unit.

Why Savant’s bullish on wealth plus tax services, too

Savant made at least two RIA M&A deals this year, acquiring firms managing more than $1 billion in client assets and a footprint in both the wealth management and accounting fields.

"Preparing tax returns, managing investments and providing basic financial planning are increasingly commoditized services and not so special," Brodeski said in an email. "However, integrating investments, planning, taxes and advanced planning is complex and remains a potential point of differentiation. In addition, clients really like the 'one-stop-shop' and easy button to combine these services. As such, accounting firms increasingly understand that by adding wealth management, it provides them the opportunity to expand their value proposition and monetize the relationships they have. Similarly, advisors are recognizing that they can stand out from their peers who all use the same planning software and all do asset allocation and fund selection. By adding tax preparation and advice, they create more real and perceived value for their clients, make their relationships sticky and add additional revenue streams."

Osaic majority owner accepting offers for minority stake

Private equity firm Reverence Capital Partners aims to sell up to a 20% stake in Osaic, the independent wealth management firm formerly known as Advisor Group, at a price as high as $2.5 billion, people familiar with the matter told Bloomberg News last week. 

That purchase price represents a valuation of $12.5 billion for the entire company spanning about 11,000 advisors with $500 million in client assets. By comparison, the go-private deal made by Clayton, Dubilier & Rice for RIA aggregator firm Focus Financial Partners earlier this year set its enterprise value at $7 billion.

"Reverence is and continues to be an incredible long-term partner to Osaic," Osaic CEO Jamie Price said in a statement to Bloomberg. "With the success we've had as a firm, we consistently have interest from other investors looking to invest."

Is Focus consolidating its RIAs?

Under its new private equity owner, Focus is rolling up its more than 90 RIAs into the biggest firms in the network, according to recent news reports by WealthManagement.com and Citywire RIA. Focus purchased outstanding shares in one of the largest RIAs in its ranks, The Colony Group, and combined it with another of them, Connectus Wealth Advisers, to create a firm with $30 billion in client assets, Citywire reported.

Representatives for the firm didn't respond to an email and phone call seeking comment on its strategy after going private under Clayton, Dubilier in August. Longtime Focus CEO Rudy Adolf is stepping down from his role after nearly 20 years at the end of 2023. In addition to naming Dan Glaser, the onetime CEO of professional services firm Marsh McLennan, the chief of the firm on an interim basis, the company unveiled four new executive appointments last month.

"These appointments reflect Focus' strategic evolution as a private company towards a more cohesive organization that seeks a common purpose, higher levels of collaboration and which operates with greater levels of efficiency for the benefit of its partner firms and the clients they serve," the company said in a press release at the time.

Conventional options still available

Some advisors may forget that they can consider the "conventional commercial financing world" as well when thinking about raising capital for RIA M&A deals, Bruner said.

"You don't necessarily have a crystal ball as to what could potentially happen either in the short term or the long term with a PE buyer," she said. "What the financial advisors should know is that they have optionality in this space."

To view the original article written by Tobias Salinger - Chief Correspondent, Financial Planning, please visit:

https://www.financial-planning.com/list/how-independent-wealth-management-firms-are-consolidating