Mergers & Acquisitions

Financial Professionals Bullish About M&A In RIA Industry

Deal flow expected to rise at rapid clip as RIAs, wirehouse and broker-dealer financial professionals look to monetize their practice—or make it stronger

Seventh Annual Advisor Authority reveals that RIAs and financial professionals in the wirehouse and broker-dealer channels are more bullish about M&A than we’ve seen in years

Columbus OH—September 22, 2021—As stock market valuations rebounded from last year’s bottom and hit new highs over the past 18 months, more advisors and financial professionals may be looking to monetize their practices in the year ahead, while others look to make their practices stronger.

Many advisors and financial professionals expect consolidation and merger and acquisition (M&A) activity in the Registered Investment Advisor (RIA) industry to increase in the next 12 months (67%), and this year more expect M&A to have a positive impact on their practices (54% in 2021 vs. 42% in 2020).

These are among the latest findings from Nationwide’s seventh annual Advisor Authority study, powered by the Nationwide Retirement Institute®, conducted online by The Harris Poll, based on a survey of nearly 2,500 advisors, financial professionals and individual investors.

“Our seventh annual Advisor Authority study makes it crystal clear that RIAs and financial professionals in the wirehouse and broker-dealer channels are more bullish about M&A than we’ve seen in years. Valuations are rising as markets hit new highs and private equity gets in on the game, meaning some advisors and financial professionals are more than ready to monetize their practice,” said Craig Hawley, Head of Nationwide Annuity Distribution. “We also see a spike in consolidations as others are ready to double down and make their practice stronger—the need for scale, the impact of fee compression, the price tag for technology and the cost of compliance hits all firms hard, especially the smallest.”

Bullish on M&A

At the mid-point of 2021, M&A activity in the RIA industry is on pace to surpass last year’s high water mark and hit a new record for an eighth consecutive year, according to the DeVoe & Company RIA Deal Book. The Deal Book notes that the rise in activity was largely driven by mid-sized firms selling at twice their usual volume.

According to Advisor Authority, roughly three-fourths of RIAs and fee-based financial professionals (73%), nearly three-fourths of wirehouse financial professionals (74%) and roughly two-thirds of BD financial professionals (65%) say that consolidation and M&A in the RIA industry will increase. Expectations for deal flow are substantially higher than last year, with RIAs and fee-based financial professionals up 14 points (73% vs 59%), wirehouse financial professionals up 9 points (74% vs 65%) and broker-dealer financial professionals up 5 points (65% vs 60%).

The majority of advisors and financial professionals also expect M&A activity will positively impact their businesses in the next 12 months. This is also substantially higher than last year, with RIAs and fee-based financial professionals up 16 points (55% vs 39%), Wirehouse financial professionals up 20 points (68% vs 48%), and Broker Dealer financial professionals up 13 points (52% vs 39%).

Sharp Rise in Selling Opportunities—especially for RIAs and Wirehouse Financial Professionals

Among those who expect M&A to have a positive impact on their business, 2021 is the first year of our study that RIAs and fee-based financial professionals say increased opportunities to sell their business is one of the leading benefits of M&A. RIAs and fee-based financial professionals who cite increased selling opportunities as the top benefit of M&A are up 13 percentage points from last year, and much higher than prior years (35% in 2021, 22% in 2020, 29% in 2019, 29% in 2018, 20% in 2017).

This is also the first year that wirehouse financial professionals cite increased opportunities to sell their business as the leading benefit of M&A, also up 13 percentage points from last year and higher than previous years (38% in 2021, 25% in 2020, 32% in 2019, 23% in 2018). Broker-dealer financial professionals this year cite increased opportunities to sell their business as second most important benefit of M&A, up 10 percentage points from last year and substantially higher than prior years (34% in 2021, 24% in 2020, 21% in 2019, 19% in 2018).

More Resources for Serving Clients Matters Most to RIAs

Year over year, advisors and financial professionals say that attracting and retaining clients is key for greater profitability and greater growth. M&A is one way to ensure that they have the resources to serve clients. In fact, among RIAs and fee-based financial professionals who expect M&A to have a positive impact on their business, greater resources to serve their clients has been selected as a top benefit of M&A every year of our study, with the exception of last year, when it tied for the second most important benefit. (35% in 2021, 30% in 2020, 32% in 2019, 40% in 2018, 46% in 2017).

Likewise, among wirehouse financial professionals, greater resources to serve clients has also been selected the top benefit of M&A every year, with the exception of this year, when it was the third most important (33% in 2021, 35% in 2020, 34% in 2019, 38% in 2018). Meanwhile, broker-dealer financial professionals selected it third most important this year, down from the most important benefit last year (33% in 2021, 36% in 2020, 28% in 2019, 34% in 2018).

M&A Key to Succession Planning

After a year of managing the pandemic’s impact and preparing for its unknowns, more advisors and financial professionals have a succession plan in place (77% in 2021 vs 73% in 2020). RIAs and fee-based financial professionals with a succession plan in place rose 7 points over last year (77% vs 70%), while among wirehouse financial professionals, those with a plan rose 5 points (84% vs 79%) and among broker-dealer financial professionals, they rose 9 points (81% vs 72%).

For many, M&A is part of an effective means of succession planning. In fact, among RIAs and fee-based financial professionals who expect M&A to have a positive impact on their business, the second most important benefit of M&A is allowing them to create a succession plan, up 7 points from last year (34% in 2021, 27% in 2020, 24% in 2019, 27% in 2018, 27% in 2017). Likewise, among wirehouse financial professionals, creating a succession plan is the second most important benefit of M&A, also up 7 points from last year (35% in 2021, 28% in 2020, 28% in 2019, 27% in 2018). While among broker-dealer financial professionals, creating a succession plan is tied for the fourth most important benefit of M&A, it is also up 7 percentage points from last year (32% in 2021, 25% in 2020, 30% in 2019, 23% in 2018).

A Way to Scale Up—especially for Broker-Dealer Financial Professionals

Valuations are rising as markets hit new highs and private equity gets in on the game, meaning some advisors and financial professionals are more than ready to monetize their practice...

Some advisors see M&A as a way to scale up, allowing them to expand rapidly and serve more clients more efficiently. In fact, among RIAs and fee-based financial professionals who expect M&A to have a positive impact on their business, greater resources to expand and scale their business is tied for the third most important benefit of M&A, up slightly from most prior years, with the exception of 2018, when it was the second most important. (32% in 2021, 28% in 2020, 30% in 2019, 34% in 2018, 31% in 2017).

Wirehouse financial professionals say that greater resources to expand and scale their business is not among their top three benefits of M&A, and this factor has declined in importance since 2018 (30% in 2021, 30% in 2020, 31% in 2019, 38% in 2018). On the other hand, among broker-dealer financial professionals, greater resources to expand and scale their business is the leading benefit of M&A this year, and has been consistently among the top two benefits in prior years as well (35% in 2021, 33% in 2020, 35% in 2019, 37% in 2018).

Buying Opportunities Matter More to Broker-Dealer Financial Professionals

While more advisors and financial professionals see M&A as a way to exit the industry, others say it creates buying opportunities. RIAs and fee-based financial professionals who have a positive sentiment about the impact of M&A say the third most important benefit, tied with expanding and scaling their business, is increased opportunities to buy another practice (32% in 2021, 32% in 2020, 24% in 2019, 27% in 2018, 30% in 2017).

Among wirehouse financial professionals, increased buying opportunities is not cited as a top three benefit of M&A, although it is rising in importance since 2019 (29% in 2021, 27% in 2020, 20% in 2019, 31% in 2018). In contrast, among broker-dealer financial professionals, increased buying opportunities is tied as the second most important benefit of M&A, increasing steadily year over year (34% in 2021, 30% in 2020, 26% in 2019, 20% in 2018).

M&A Part of the Path to Success

Year over year, Advisor Authority has shown that the most successful advisors and financial professionals—defined as those who earn more than $500,000 or individually manage total AUM of $250 million or more—are consistently more bullish about M&A than all other advisors and financial professionals, and they are also more optimistic about the benefits to their firm.

Nearly two-thirds of successful advisors and financial professionals (63%) say M&A activity will positively impact their businesses in the next 12 months, as compared to roughly half of all other advisors and financial professionals (51%). Successful advisors and financial professionals who expect a positive impact on their business from M&A, say the top three reasons include increased opportunities to sell their business (37%), greater resources to serve their clients (36%) and allowing them to provide ongoing employment for existing employees (34%).

Concerns Low—but More Competition and Price Compression Possible

A small number of all advisors and financial professionals (13%) say consolidation and M&A activity in the RIA industry will negatively impact their businesses in the next 12 months. Only 11% of RIAs and fee-based financial professionals, 9% of wirehouse financial professionals and 15% of broker-dealer financial professionals expect M&A to negatively impact their business.

Among the three most common concerns of those who expect M&A to have a negative business impact, pricing compression is most frequently cited by RIAs and fee-based financial professionals (40%), wirehouse financial professionals (37%) and broker-dealer financial professionals (38%). Increased competition is also cited as a top three concern by RIAs andfee-based professionals (37%), wirehouse professionals (39%) and broker-dealer professionals (40%). Making it harder to compete as a small independent firm is cited by RIAs (39%) and broker-dealers (37%), while pressure to sell products that might not be right for their clients is cited by wirehouse (35%) and broker-dealers (37%).

More Information

For additional insights on M&A in the RIA Industry, financial professionals can also download the latest infographic from the seventh annual Advisor Authority study, here.

Nationwide’s seventh annual Advisor Authority study powered by the Nationwide Retirement Institute® explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today’s complex market. This is the first in a series of ongoing releases from the seventh annual study.

 

 

 

About Advisor Authority: Methodology
The seventh annual Advisory Authority Survey was conducted online within the United States by The Harris Poll on behalf of Nationwide from July 22 – August 17, 2021 among 1,632 advisors and financial professionals and 839 investors, ages 18+. Among the 1,632 advisors and financial professionals, there were 790 RIAs, 790 broker-dealer, 501 wirehouse and 160 other financial professionals. Respondents for this survey were selected from among those who have agreed to participate in Harris Poll surveys. Because the sample is based on those who were invited to participate in Harris Poll online research, no estimates of theoretical sampling error can be calculated.
About The Harris Poll
The Harris Poll is one of the longest running surveys in the U.S. tracking public opinion, motivations and social sentiment since 1963 that is now part of Harris Insights & Analytics, a global consulting and market research firm that delivers social intelligence for transformational times. We work with clients in three primary areas; building twenty-first-century corporate reputation, crafting brand strategy and performance tracking, and earning organic media through public relations research. Our mission is to provide insights and advisory to help leaders make the best decisions possible. To learn more, please visit www.theharrispoll.com.
About Nationwide
Nationwide, a Fortune 100 company based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the United States. Nationwide is rated A+ by both A.M. Best and Standard & Poor’s. An industry leader in driving customer-focused innovation, Nationwide provides a full range of insurance and financial services products including auto, business, homeowners, farm and life insurance; public and private sector retirement plans, annuities and mutual funds; excess & surplus, specialty and surety; pet, motorcycle and boat insurance. For more information, visit www.nationwide.com. Follow us on Facebook and Twitter.