It's easy to confuse frequency with duration—especially when you're struggling with a high volume of activity. Categorizing things comes naturally to all of us. It appeals to our sense of order and perhaps creates an atmosphere of control. Within the wealth management industry, we organize events in cycles. Bull, bear, business, life … we love a good cycle. It provides order and (often mistakenly) helps inform what we think should happen next.
Right now, the wealth management industry is in the midst of a cycle of consolidation — especially among RIAs. Given the number of transactions making headlines, one would be forgiven for believing that the deal involving mega-RIAs, aggregators and consolidators must be nearing its inevitable conclusion.
But where are we really?
Speaking to industry watchers, the consensus is that we are closer to the beginning of the cycle than the end when it comes to M&A. To use a baseball analogy, we're in second, maybe third. And we've been for the last three or four years… years that we've seen external events affect every area of our lives, including the area of wealth management.
In 2023, M&A saw a slowdown driven by market volatility, economic uncertainty and rising cost of capital. It was not drastic by any means, and opportunities remain for both buyers and sellers. Even with all the consolidation we've witnessed, there are new net VNRs flooding the landscape every year.
That's not to say the landscape hasn't changed. It has, in meaningful ways. With increased selectivity among buyers, especially the more established ones, prices are being scrutinized more closely. I am seeing an environment of dual pricing and segmentation based on quality. Premium practices and firms are still capturing the attention and dollars of buyers, despite potentially more aggressive pricing than in previous years. In fact, prices may be at their peak. However, less attractive firms are not generating as much interest, are seeking fewer potential buyers, and may see prices drop.
Let's not forget the influence of private capital. Already a strong presence in the wealth management M&A space, more PE players are seeking an entry on a selective basis. This is one of the indicators that we are still far from the maturity of this acquisition and consolidation trend. However, it could help advance the cycle and push us into the fourth inning (to continue the baseball analogy)—a significant development given the inertia mentioned earlier.
What will the future look like? The opportunities will be there, for sure. But is it worth pursuing? We cannot predict the future. The reality is, at the moment, this industry is still so fractured that there will continue to be huge opportunities – both in terms of quality and quantity – for both buyers and sellers over the next five years. It is important to note that as buyers continue to be more selective, sellers must position themselves appropriately to gain traction in an increasingly competitive market.
Jeff Nash is the Chief Executive Officer and co-founder of Bridgemark Strategies.