Banks, credit unions queue up for acquisitions of advisory practices, RIAs

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Banks and credit unions are out in force in search of RIAs and independent advisory practices to acquire. The problem is they can't find them.

“It’s definitely a seller’s market,” says Jamie Kosharek, Eastern Division director for the unit of Raymond James that supports banks and credit unions. "There are definitely more buyers in the market than there are sellers."

Driven by intense competition, financial institutions are more eager than in the past to grow their wealth management businesses and diversify their non-interest income through acquisitions, say industry observers.

Raymond James has seen a "significant pickup" in the number of financial institutions inquiring about strategic opportunities with several deals coming together in recent months, says Kosharek.

MainSource Bank, a Raymond James-affiliated community bank in Greensburg, Indiana, snapped up several independent practices over the past year, while Union Bank and Trust, a community bank in Virginia, acquired Old Dominion Capital Management, an RIA with nearly $300 million in assets.
Other third-party broker-dealers have also noticed an uptick in activity. LPL Financial, for example, recently guided Salem Five Bank, a community bank in Salem, Massachusetts, in its acquisition of Stumm Financial, a local independent financial adviser with more than $179 million in client assets.

Third-party broker dealer CUSO Financial Services, or CFS, has also "seen a lot of interest" among banks and credit unions and is in conversations with a couple of organizations, says Keith Weber, CFS's chief marketing officer.

Digging for clients outside the bank
While financial institutions have long used acquisitions to grow their wealth management businesses, they now have more reason to do so. Competitive and industry forces are pushing them to find ways to capture clients that are not already clients of the bank, something that financial institutions have struggled to do.

An acquisition allows banks to "buy a book of business that really does exist outside of the bank's current assets," says Tim Kehrer, senior research analyst at consulting firm Kehrer Bielan Research & Consulting.

It’s also a way to pick up coveted high-net-worth clients, which have generally eluded banks and credit unions. "RIAs tend to serve wealthier clients," says Kehrer. Even if a bank adviser has high-net-worth clients, "chances are that adviser is capturing only a small fraction of their assets," he says.

The advent of the fiduciary rule is another factor prompting banks and credit unions to buy advisory practices. RIAs are more heavily skewed toward fee-based business, a plus for institutions that still have a high percentage of commission-based accounts.

“It will help them to jumpstart that transition away from transaction to advisory,” Kehrer says.

New homes for senior advisers
Buying RIAs and independent shops also helps banks and credit unions find homes for senior advisers who no longer need to be physically located at bank branches for referrals. Senior advisers can move to the offices of the RIAs or independent practices being acquired.

The adviser remains within the family but does not take up physical space in a bank branch when they’re not benefitting from the referrals that are being generated by the bank," says Kehrer. "They’d rather put a junior adviser in that seat who really needs those referrals to be able to grow his or her book.”

While the market for RIAs and independent advisory practices is tight, financial institutions have an important demographic trend on their side – a growing pool of senior advisers getting ready to exit the business.

Many may even be looking to get out sooner than expected, according to industry observers. The fiduciary rule has spurred some advisers to put their practices up for sale because "they don't want to continue to be in an industry [that is dealing with] additional regulation," says Raymond James' Kosharek.

Way to ease out of business
For independent advisers looking to get out, financial institutions may be an attractive partner to sell their book of business to, particularly if they want to ease their way out, say industry sources. Financial institutions provide structure and support to advisers who want to stay on as advisers with the bank or credit union in some capacity and slowly transition their accounts over to younger advisers that they train.

“A lot of these advisers don’t necessarily want to sell their practices completely and retire cold turkey. They want to stay somewhat engaged," says CFS's Weber.

When sellers aren't ready to leave the business completely, they can retain primary servicing responsibilities of a small, select group of clients while knowing that they have backup to service those clients should they take time off to travel, or just get away, Weber explains. Another benefit, he says, is that they can mentor younger advisers, which many find rewarding as they near the end of their careers.

Third-party broker dealers are stepping in as middle-men, trying to connect financial institutions with RIAs and independent advisers. Raymond James, LPL and CUSO, for example, help banks and credit identify suitable practices to buy. They also help with valuations and deal structure and provide guidance on financing, according to the firms.

Raymond James has a department dedicated to the matchmaking. It hosts an internal site where sellers can put up their 'for sale' signs and borrowers can indicate the markets they're interested in.

"We try to serve as an independent third party between the buyer and the seller to help both sides come together in terms of right fit," Kosharek says.

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RIAs Fiduciary Rule M&A Arthur Osman Jamie Kosharek Keith Weber Raymond James Financial LPL Financial CUSO Financial Services