Eliane Chavagnon
Reporter
27 July 2012
Daily News Analysis
So far this year there have been 25 merger and acquisition deals involving registered investment advisor firms, down slightly from the 27 recorded in the first half of 2011, according to new data from Schwab Advisor Services.
According to the research findings, national acquiring firms were the dominant buyer category, having finalized three transactions in Q2 and about half of the total deals since the final quarter of 2011. The 2012 year-to-date figure, which shows acquiring firms as the buyer in 48 per cent of deals, has shot up from 30 per cent for 2011.
Meanwhile, the proportion of deals where another RIA was the acquiring firm fell from 44 per cent in 2011 to 28 per cent this year so far. Regional banks held fairly steady, dropping from 10 per cent to 8 per cent, while national banks' share fell from 2 per cent to zero.
In terms of assets under management, the deals in H1 were worth about $36.2 billion, equal to an average of $1.4 billion for each transaction. Meanwhile, during the second quarter there were eight completed transactions, worth $12.3 billion in AuM.
“RIA M&A deal flow has remained steady during the first half of 2012, recording just slightly fewer transactions than the same period last year,” said Jon Beatty, senior vice president of sales and relationship management at Schwab. “While the second quarter slowed a bit in terms of the number of completed transactions, we’ve seen a big jump in the average deal size so far this year, indicating the overall strength of the RIA segment.”
The broader picture
Schwab's latest findings reflect a broader trend that independent advisory firms are becoming a more attractive option to those advisors looking to swap firms, according to certain surveys.
A 2011 report from Aite Group found that about 22 per cent of advisors wanted to go independent, the ramifications of which are becoming increasingly apparent. At the time of the survey, just one-third of the 25 per cent of wirehouse advisors who were likely to switch employer said they would consider going to another similar firm, with two-thirds looking to move to an independent firm. Moreover, many respondents anticipated "next year" as a probable timeframe for moving.
According to a recent whitepaper from Sanctuary Wealth Services, between 2007 and 2010, wirehouse assets fell 7 per cent while they climbed 21 per cent (albeit from a lower base) for independent advisors.
Nonetheless, Jeff Spears, co-founder and chief executive of Sanctuary recently told this publication: “They [wirehouses] still have the lion’s share of private client assets today – they’re already starting to fight back with a couple of items which they have a competitive advantage on." (View the article here).
Schwab’s M&A data focuses on investment advisory firms that mainly serve high net worth retail investors, firms with at least $50 million in AuM and breakaway brokers from wirehouses. The firm began tracking M&A transactions in 2004.
