When it comes to financial advisory mergers and acquisitions, it's not just the big fish who have an appetite.

Newly released data  shows 2013 emerged as "the year of the tuck-in" for RIAs, with more likely to come this year, according to Schwab Advisor Services.

"The average deal was a $1 billion or more RIA buying a mid- or smaller-size firm, a classic tuck-in," says Jonathan Beatty, senior vice president of sales and relationship management at the Charles Schwab division providing transition services to advisors. "You didn't see as much peer-to-peer sales of firms, and RIAs moved ahead of roll-ups and other big strategic acquiring firms as the leading buyers."


Schwab reports 54 completed merger and acquisition transactions in the RIA market last year, with advisory firms accounting for 44% of the deal activity. What Schwab calls "strategic acquiring firms" -- also known as rollups or aggregators, such as Focus Financial Partners or United Capital -- participated in 32% of 2013 transactions, down from 53% in 2012.

"We're starting to see affiliates of the aggregators doing their own deals, as part of the trend of larger firms acquiring smaller and midsize firms," Beatty says. "That's a positive for the industry because it creates more diversity and more types of buyers, which is appealing to sellers."

Smaller RIAs began employing M&A as a growth strategy in the second half of 2013, according to Schwab’s M&A data, a trend Beatty expects to continue in 2014.

Indeed, 25% of firms with between $100 million and $250 million in AUM surveyed in Schwab's RIA Benchmarking Study report they are actively looking to acquire another firm. "That's a very healthy sign for the market," Beatty says. 


Because more of the deals involved smaller firms, fewer assets were involved in 2013 deals than in the previous year, even though the number of deals increased, Beatty says. The total AUM acquired dropped 26% to $43.6 billion from $58.8 billion; there were nine more transactions in 2013 than in 2012.

Some bigger firms may be reluctant to sell in a bull market, according to Beatty. "They may be more focused on building value and looking for a future catalyst to sell," he observes.

Meanwhile, Beatty says, there have been fewer sales by exiting baby boomer owners than had been anticipated.

"We haven't seen that volume coming as predicted," he says. "Baby boomers may be focusing on internal succession instead of a sale as they wait for increased valuation. It may turn out that the second generation of owners will be the sellers, and not the founders."

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