The consolidation of the RIA industry is playing out in real time, as the big players get even bigger in their pursuit of the holy grail called scale. Case in point: The 13th annual Deals and Dealmakers Summit held recently in Dana Point, California.
Dana Point is renowned for its coastal cliffs and surf culture, and it's also home base for Echelon Partners, the industry's leading investment bank focused on wealth management. Echelon, led by founder and CEO Dan Seivert, gathers executives, consultants, financiers and advisors looking at how to best position themselves for the generational wealth transfer of advisors and assets.
This is especially relevant as aging industry founders have developed valuable businesses but have failed at internal succession planning. Add a plethora of purchase options and a voracious appetite from private equity for these attractive, cash-flow-generating businesses, and it was definitely deal-time at the conference.
Industry statistics back these trends, according to Mike Wunderli, managing director at Echelon.
"Deal volume continues to surpass expectations," he said, "with 2024 on pace to be the second highest ever, with a 10.3% CAGR over the last five years."
Much of this volume has been driven by PE financing through RIA buying platforms, such as Wealth Enhancement Group, Mercer Advisors and others, that are using capital to scoop up the many small to midsize firms whose smaller assets under management immediately become valued at a higher multiple, creating powerful financial leverage.
Even with this deal frenzy, Wunderli believes that the buying community has become much more disciplined.
"The professional buyers are being much more selective now," he said, "doing more strategic acquisitions to onboard professional services capabilities, such as tax, estate planning and alternative investing to fill out their family office capabilities vs. just an AUM grab."
With the increased focus of PE investors, Wunderli noted, they are also funding minority investments. That's becoming an area of emphasis from leading firms such as Emigrant Partners and Constellation Wealth Capital, both in attendance at the conference. Their approach has been to build out powerful portfolio networks of growing firms.
The dealmaking community also remains focused on interest rates. With the dramatic uptick in rates over the past several years, many observers predicted a drastic reduction in deal volume. And while that hasn't played out in wealth management, rates have had a big effect on overall financial services.
"Wealth management remains a unicorn," Wunderli said. "M&A in wealth management has actually been up 45% in the higher rate environment, while the broader financial services industry has been down 30%."
Wunderli did point out that there were a few recent mega-deal transactions such as AssetMark, Focus Financial and Envestnet all taken private, which may have skewed the data.
