A spike in the proportion of RIA-to-RIA deals in the first half of this year may signify that the advisory field is starting to come into its own.

“I think what we are seeing is the next stage of maturity,” says Mark Tibergien, CEO of Pershing Advisor Solutions. “What advisors are realizing is that this business is one that lends itself to active ownership better than passive ownership.”

While the total amount of M&A activity declined, the percent of deals that were between RIAs increased to 67% between January and June of this year from 37% for all of 2012, according to Pershing’s mid-year deals report, The Powerful Potential of the RIA-to-RIA Deal. This is the seventh year that Pershing, the advisory services business owned by Bank of New York Mellon Corp., has released the study.

The study counted 12 deals for the first half of the year, accounting for about $29 billion in assets under management. (A similar study from Schwab Advisor Services enumerated 18 completed transactions in the same time period, totaling $15.4 billion in AUM -- which Schwab called the lowest since the first half of 2008. The varying results reflect different methodology.)

The decline in M&A activity seems to reflect new confidence among investors and RIAs, as noted by both the Pershing and Schwab studies. Deal-making may have dropped as strong markets have persuaded more advisors to focus on organic growth and increasing the enterprise value of their firms in advance of any sale.


Of those who did sell this year, far fewer chose to sell their practices to consolidators or roll-up firms.

“This is clearly a business that relies on its labor,” Tibergien says. “Those who are laboring tend to get resentful to those who are taking money but not contributing to the business. It's probably the nature of a service business ... You don’t often see a law firm or an accounting firm, in part for regulatory reasons, owned by somebody who’s not a partner in a firm. It’s the old Adam Smith argument about labor vs. capital.”

Sellers are more likely to choose roll-up firms or consolidators when they know they are headed for an initial public offering, Tibergien says. “If a liquidity event isn’t imminent, it tends to not be a very good thing,” he said.

The Pershing study focuses on mergers involving RIAs that are retail-focused and managing $50 million or more in assets or earning $500,000 or more in annual revenues.

“Admittedly, the 35-50 … transactions that typically meet these criteria annually directly affect a very small portion of the industry,” the study authors wrote. “The trends they reveal, however, are invaluable to all firms.”

The Pershing study was first published in 2007, a peak year for M&A activity overall as well as for RIA transactions specifically. Activity declined steeply from 2007 to 2009, in line with a worsening economic recession, but overall deal-making has increased as the economy recovered.

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