A survey of RIAs that use TD Ameritrade as their asset custodian found that 82% expect mergers and acquisitions to rise in the next 12 months. More than half, 53%, say they are looking to make one or more acquisitions.
Driving these deals, advisors say, are concerns related to succession planning, 54%, as well as scalability, 35%, and regulatory pressure, 7%. At the same time, though, most RIAs — 68% — do not want to sell or merge their firm.
TD Ameritrade collected the views of RIAs at its 2014 Elite Summit held in June in Dana Point, California. The event brought together 190 RIAs with at least $1 billion in client assets, 70 of whom completed the M&A survey.
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"Advisors are eager to continue expanding, but there is intense competition for new clients and organic growth by itself takes time," Pete Dorsey, managing director of sales at TD Ameritrade Institutional, said in a news release.
"Acquiring an RIA firm or adding advisor teams can be an important part of a comprehensive business development strategy, for both buyers and sellers," Dorsey explained. "The key for advisors, in any scenario, is finding the right cultural fit."
When asked what drives the value of the acquisitions they are considering, RIAs say the target firm's clientele is most important, 33%, followed by the quality of partners and staff, 25%, as well as revenue growth, 25%, and the level of assets under management, 18%. Technology clearly is not a significant factor in such deals; no RIAs polled believe IT is of major importance when it comes to M&As.
As for succession plans, most RIAs, 68%, intend to internally transfer their businesses to other partners. About 11% of RIAs polled may sell to or merge their businesses with other RIAs or rollup firms. In addition, 21% of RIAs indicate that they do not have a formal succession plan.
In terms of the timing of their succession events, 36% of RIAs expect these transitions to happen over the next 10 years; 28% over the next five years; 17% within the next 20 years; 14% more than 20 years from now; and 5% over the next 12 months.
"The term 'succession planning' for many advisors has connotations of giving up control or leaving the business, yet it's important advisors have a long-term plan, whether that involves selling to a third party or transferring control within their firm," said Dorsey. "The better framework for this kind of discussion is 'strategic planning,' and it's something every firm should be thinking about, regardless of where you are in your firm's life cycle."
RIA Momentum
Independent RIAs with a large base of assets are upbeat on the continued movement of advisors into this channel. In fact, 75% of those polled by TD Ameritrade say there will be more movement into it over the next 12 months. Only 1% of RIAs believe the movement will weaken, with 14% expecting it to remain the same.
A large percentage of RIAs surveyed, 46%, see themselves considering a "tuck in" or addition of a team within the next year. However, an equal number, 46%, say they are not interested in such moves. Just 8% say they plan to actually complete such an addition.
When asked where such teams would be tucked in from, those polled indicate other RIAs, 29%, independent broker-dealers, 19%, and the four wirehouses, 14%.
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Janet Levaux
Editor-in-Chief Janet Levaux has covered the financial markets since 1991, with a focus on financial advisors since 2005. After graduating from Yale and the Johns Hopkins School of Advanced International Studies (SAIS), where she studied global economics, Janet worked as a freelance financial and business writer in Japan, and then as a reporter and editor for Investor's Business Daily and the Bay Area News Group in California. She earned an MBA in 2007 and since then has helped lead key ThinkAdvisor projects like its Neal-Award winning reporting on Ken Fisher, Luminaries awards program and Women in Wealth newsletter.
