There has been a wave of consolidation in the registered investment advisor space over the past few years. For example, last month broke the record for M&A activity in the RIA spaceaccording to DeVoe & Company. In the year to November 1, such deals increased by 12% compared to 2023.
That pace of activity is likely to continue for the foreseeable future, with market research firm Cerulli Associates predicting that RIA acquisition activity will reach $3.8 billion over the next five to 10 years, Stephen Caruso said. , associate director of wealth management, with the firm.
A recent Cerulli report found that the share of RIAs affiliated with consolidators grew from 6% in 2018 to 14% last year. During the same period, RIA consolidators' AUM grew by 10 percentage points to account for 18% of the RIA channel's AUM, or $1.5 trillion.
Several trends are driving this, including the fact that there are more buyers in the market today than there were five years ago. In addition, many of the acquirers are beginning to develop a larger suite of services to support the advisors they acquire and help them acquire more clients. Caruso brought examples of Creative Planning AND Hightower as firms currently in major acquisitions, which are giving advisors access to trust and estate planning, accounting services and tax planning services, among other resources.
“The takeaway for us from this research is that RIAs are very interested in the opportunity to win,” Caruso said.
“These firms are really perpetuating the suite of services that surround the advisor, making them more competitive in the marketplace and giving them the resources to be stronger than they would be individually. And as they develop these service suites, the advisor has broader capabilities than ever before, and that perpetuates competition for clients in the RIA space. As firms gain scale, they must differentiate themselves from other consolidators to acquire RIAs and make those new client acquisition opportunities much more fruitful.”
Cerulli's surveys found that integrated technology platforms, compliance guidance, succession planning, marketing strategies, and trading and operations support were among the top services offered by consolidators that RIAs found attractive. For example, 58% of advisors surveyed indicated that compliance guidance and ongoing support are the most valuable services consolidators offer, while 55% indicated integrated technology platforms.
“We're really seeing advisers take a look at large VNRs and recognize the value. They're seeing valuable service offerings from being able to leverage a broader technology platform to incorporating multiple advisor succession plans to having ongoing operational support,” Caruso said. “Also, that branding and marketing is extremely important. Some of these large consolidators, you look at their average marketing budget and ability to promote their advisors and their brand, and all of that helps drive acquiring new clients for individual advisors in the field.”
About 50% of the NRAs surveyed cited adviser succession planning as the main selling point of the consolidator. Cerulli found that almost 74% of VNRs look at succession planning or potential exit strategies when deciding whether to join a large RIA platform or aggregator, and 35% consider it a major factor in such decisions. The firm estimates that 37% of today's RIAs, or about 31,000 advisors, will retire over the next decade, creating the need to transition up to $2.7 trillion in assets. However, 26.7% of VNRs remain unsure of what the transition plan will bring when the time comes for them to retire.
RIAs' top concerns about partnering with consolidators included loss of autonomy, reduced overall independence, transition operations, client resistance, and lost revenue during the transition. However, Cerulli concluded that VNRs are willing to sacrifice some of their autonomy if they feel that joining a consolidator will ultimately benefit their business.
Cerulli's report was based on responses from over 2,000 financial advisors gathered in multiple surveys conducted throughout the year.