City National Corp., the parent company of City National Bank, has agreed to acquire a majority interest in Lee Munder Capital Group, a Boston-based investment firm that manages assets for corporations, pensions, endowments and affluent households.

Lee Munder Capital Group will merge with Independence Investments, a Boston-based institutional asset management firm in which City National holds a majority interest, to become City National’s primary institutional asset management affiliate with $4 billion assets under management. It will operate under the Lee Munder Capital Group name and as an affiliate of Convergent Capital Management LLC, a Chicago-based RIA that was acquired by City National in 2003.

Formed in 2000, Lee Munder will combine with Independence to “strengthen and diversify the institutional asset management capabilities available to our clients,” Richard Gershen, executive vice president of Wealth Management for City National, said in a statement. Lee Munder President Kenneth Swan will serve as the combined firm’s CEO. Dave DeVoe, managing director for Schwab Advisor Services, said in an interview that the deal is a strategic boost for Convergent Capital Management.

“(Lee Munder Capital Group) provides them with a diversified portfolio of institutional and high-net worth clients,” DeVoe says. Schwab serves as a custodian for Convergent Capital.

Looking beyond the Lee Munder deal, DeVoe expects to see a steady market for mergers and acquisitions in the RIA industry as consolidation continues to grow. Some of the factors that will bolster this trend include: Demographics; the average principal of an RIA firm is 54, with over 30% beyond 60 years of age. These owners are now developing exit strategies and want to have a succession plan in place. Interest from private equity money will also continue to grow, says DeVoe, because the RIA space is viewed as a “vibrant, growing market.”

“Independent firms have not only been able to gather a large share of the private equity money, customer confidence in the independent model has also only increased when compared to other options,” he says.

The proliferation of holding companies also adds to the growth in M&A deals within the sector. Whereas there used to be four or five companies, there are now over two dozen players. DeVoe adds that with all the media attention given to M&A deals over the past several years, advisors have also grown increasingly sophisticated in their knowledge of the market.

Although national and regional banks have scaled back their deal making during the economic downturn, DeVoe believes that RIAs will continue to pick up the slack on the buy side. RIAs as a buyer category has steadily grown its share of acquired AUM from 28% in 2007, to 48% in 2008, to 60% YTD 2009. This increase underscores the RIA principals' growing sophistication in mergers and acquisitions, says DeVoe.