The Finance of Advisory

Are Firms Ready for the Impact of Private Equity on the Wealth Management Industry?

How private equity is reshaping the M&A landscape and increasing options for independent advisory firms

New research from Fidelity. Visit

June 06, 2018 — BOSTON–(BUSINESS WIRE)–Fidelity Clearing & Custody Solutions®, the division of Fidelity Investments that provides clearing and custody to registered investment advisors (RIAs), broker-dealer firms, family offices, retirement recordkeepers and banks, today released the Insights on Sources of Capital and Independence report, examining how private equity is impacting the M&A landscape. Fidelity found that established firms with demonstrated track records of consistent growth have been receiving the bulk of capital funding, resulting in the formation of unique “ecosystems,” as platform firms and strategic acquirers increasingly use this capital to fund and acquire smaller firms. In Q1 2018, strategic aggregators were responsible for more than two-thirds of M&A transactions – up from 47 percent in Q1 2017.

“As external capital providers are increasingly drawn to larger firms, assets are further concentrating at the top,” said Scott Slater, vice president of practice management & consulting, Fidelity Clearing & Custody Solutions. “Those large firms are then investing in smaller ones, often using a model that keeps the owners involved as the business grows and develops. That’s a significant shift in attitudes, and is opening up new opportunities for small firms who are open to embracing this more collaborative perspective.”

The Insights on Sources of Capital and Independence report examined the landscape through extensive interviews with leading acquirers, including members of Fidelity’s M&A Leaders Forum.1

The report identified two predominant ecosystem models through which private equity capital is making its way down from providers:

Direct Investment

In the Direct Investment Model, direct investments are made in a platform firm that uses the funds for organic and inorganic initiatives. For example, private equity firm Lightyear Capital acquired equity positions in large advisory firms, including Wealth Enhancement Group, Advisor Group and HPM Partners. The large advisory firms then made smaller firm acquisitions, helping to build significant scale.

Intermediary Model

In the Intermediary Model, a strategic acquirer uses private equity funds to support a network of affiliated firms through M&A. For example, an investor group led by private equity firms KKR and Stone Point Capital took a majority stake in Focus Financial, a strategic acquirer. Focus Financial then helped one of its partner firms, Buckingham Strategic Wealth, close more than 30 M&A deals.

Through its conversations with industry leaders,2 Fidelity identified four best practices for finding and working with private equity partners:

  1. Understand which strategy and partners best align with the firm’s interests. Advisory firms should begin by assessing their own objectives to determine the best funding option for their business. Factors to consider include growth expectations, priorities and the level of control desired. Alignment around philosophy, vision and beliefs is also important.
  2. Tap outside expertise to expand options. Outside experts, such as investment bankers and transition consultants, bring knowledge and support to the selection process to help firms make better-informed decisions. These experts can provide a wide range of expertise, from helping determine a realistic valuation and model financial scenarios, to evaluating the firm’s strategy and identifying best fit options. They can also help a firm articulate a compelling story, as well as hold a competitive auction with suitable partners and negotiate on a firm’s behalf.
  3. Plan for a successful transition and ongoing growth. Post-acquisition, firms need to achieve ongoing business success to be positioned well for additional funding. Things like dedicated onboarding teams and a focus on identifying and implementing best practices may help firms be successful.
  4. Leverage experience of capital partners to encourage continued growth. Ongoing collaboration with capital partners may help firms improve business metrics, refine managerial processes and develop strategies around critical initiatives like organic growth and succession planning.
As external capital providers are increasingly drawn to larger firms, assets are further concentrating at the top

For more information, please visit the Fidelity Wealth Management M&A Series: Insights Sources of Capital and Independence Report. This is the fourth report in the Fidelity Wealth Management M&A Series, which offers insights and best practices regarding trends shaping the industry. Fidelity also issues monthly Wealth Management M&A Transaction Reports summarizing M&A activity among RIAs and independent broker-dealers.




About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $6.9 trillion, including managed assets of $2.5 trillion as of April 30, 2018, we focus on meeting the unique needs of a diverse set of customers: helping more than 27 million people invest their own life savings, 23,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit
The content provided herein is general in nature and is for informational purposes only. This information is not individualized and is not intended to serve as the primary or sole basis for your decisions as there may be other factors you should consider.
The third parties listed are independent companies and are not affiliated with Fidelity Investments. Listing them does not suggest a recommendation or endorsement by Fidelity Investments.
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Fidelity Clearing & Custody Solutions® provides clearing, custody or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC. Members NYSE, SIPC. 200 Seaport Boulevard, Boston, MA 02210.
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1 The Fidelity M&A Leaders Forum is a community of Wealth Management M&A Industry Leaders, including leading strategic and financial acquirers, large RIA firms that have created a range of business models focused on growth and sustainability, and broker-dealers. The third parties referenced herein are independent companies and are not affiliated with Fidelity Investments. Listing them does not suggest a recommendation or endorsement by Fidelity Investments.
2 Based on interviews conducted with sources to gain insights into how external capital is influencing M&A activity. Interviews were conducted from January 23 through March 7, 2018 by The KELYN Group, LLC., an independent third-party consulting firm not affiliated with Fidelity Investments. The views and opinions expressed by the parties interviewed are not necessarily the views or opinions of Fidelity Investments.