LPL and Baird’s big deals signal activity overcoming ‘transitory trends’

Two of the industry’s largest recruiting and M&A transactions this year reflect a marketplace that experts say isn’t falling off its record pace — despite some signs of a slowdown.

On May 21, the roughly 550 financial advisors of CUNA Mutual Group’s CUNA Brokerage Services and the first $11 billion out of an expected $36 billion in client assets moved to LPL Financial’s Institution Services in what is likely to be the largest recruiting grab of the year in the independent channel. Three days later, employee wealth manager Baird completed its largest acquisition in three years with the close of its purchase of Hefren-Tillotson and its 90 financial advisors with $18 billion in client assets. Prospective recruits and sellers are driving the record consolidation by either plugging into larger platforms or folding into bigger parent firms outright.

There has “absolutely not” been any dropoff in M&A transactions during the equity volatility in recent months amid inflation and Russia’s invasion of Ukraine, according to Steven Levitt, founder of RIA M&A investment bank and consulting firm Park Sutton Advisors. In fact, Levitt’s New York-based firm agreed May 25 to fold into Chicago-based investment bank Waller Helms Advisors for reasons “very similar to our clients” when practices advised by Park Sutton make deals to join larger firms offering scale, technology and compliance services, Levitt said.

“I really just wanted to focus on doing deals and not being bogged down by the administrative challenge of running the business,” Levitt said. “I love what I do, and I want to continue doing it for many, many years. But I want to lift this kind of stuff off the team. We really just want to be able to focus on what we do well.”

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Those factors will likely keep potential sellers interested in the constantly expanding group of firms seeking to recruit or buy practices, even if certain individual players step back this year. Earlier this month on CI Financial’s first-quarter earnings call, CEO Kurt MacAlpine divulged plans for the rapidly growing RIA consolidator to do just that — even as the Canadian asset manager is in the process of acquiring a firm with $11 billion in client assets and spinning off its U.S. wealth management business in an IPO less than two years after entering the market. An analyst asked MacAlpine if the firm plans to reduce or halt RIA acquisitions or carry out stock buybacks in an effort to boost its profit margins. MacAlpine answered “yes” to both questions.

“2021 was a very unusual year,” MacAlpine said, according to a transcript by Seeking Alpha. He noted that the firm has only unveiled two deals so far this year, with one of them not expected to close until the fourth quarter. “So we've absolutely slowed down the pace of the acquisitions [and] are focused on integrating. [We’ve] just really scratched the surface around the integration that we've had in the platform.”

Anyone expecting lower transaction volumes across the industry due to the pullback by one of the most active acquirers of the last two record years will likely be wrong, though, according to the latest quarterly deal report from investment bank and consulting firm Echelon Partners. After 94 transactions in the first quarter reached the highest level of any period ever besides the fourth quarter of 2021, the volume is on pace to set a record for the 10th straight year.

“Transitory trends such as rising rates and capital markets volatility in [Q1] could be perceived as headwinds to M&A across the wealth ecosystem,” the report states. “However, to date the realized effect has been little to none as M&A volumes have remained strong and valuations continue to be supported by fundamental tailwinds such as buyer appetite and funding, quality business performance and low financing costs relative to historical averages. Given the number of buyers active in the space and new entrants arriving, we expect M&A volumes to continue near trend levels unless macro conditions deteriorate dramatically from here.”

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Baird’s acquisition represents the fifth largest of the year in terms of client assets, according to Echelon. Hefren-Tillotson, a 75-year-old firm with six branches in and around Pittsburgh, will be fully integrated into Baird by October, expanding the Milwaukee-based wealth manager’s footprint to 1,400 advisors and $415 billion in client assets. The seller’s executive leadership team of Kim Tillotson Fleming, Craig Tillotson and Don Belt are retaining positions with Baird, which navigated a key challenge in any wealth management transaction by recruiting all of Hefren-Tillotson’s advisors. The company declined to say whether it paid retention bonuses.

“Today is a day of celebration as Hefren-Tillotson and Baird move forward as a unified firm,” Tillotson Fleming said in a statement. “As the past few months have confirmed, we have found an exceptional partner in Baird, a firm that embodies the same culture and values that are at the core of our business.”

At LPL, the firm’s latest mega-recruits follow at least three others in the bank and credit union channel in the past two years — an influx that has helped push its advisor headcount above 20,000 for the first time. CUNA Brokerage works with more than 250 credit unions that have wealth management programs as part of a channel that needs to launch more of them and hire more advisors to keep up with the possible opportunity. The first wave of directly held assets migrating to LPL consists of $10 billion in brokerage accounts and $1 billion on the advisory side of CUNA Brokerage’s business. Another $21 billion will move over in the next several months. 

The formal move to LPL last week marks a “for us in our mission to serve more members with personalized guidance that can help fulfill their important life goals,” CUNA Brokerage President Rob Comfort said in a statement.

“With access to LPL’s economies of scale and innovative technology platform, combined with our advanced data capabilities and experience and leadership serving this market, we can accelerate growth for the advisors and credit union investment programs we are committed to and continue to support,” he said. “Our strategic alliance with LPL Financial creates a transformative value proposition for the credit union industry that we believe will result in many more members receiving the critical help they need.”

Such menus of resources around operations and areas such as investment products, planning, taxes, estates and insurances are attracting practices or smaller enterprises to partner with bigger firms, according to Savant Wealth Management CEO Brent Brodeski. He compares the industry’s current consolidation to the pivot undertaken by Apple in 2007 when it removed the word “computer” from its name in light of the rise of iPhones, iPods and Apple TV. Blending increasingly commoditized services for a “full suite of capabilities” under one roof will keep proving attractive to potential recruits and sellers, Brodeski said earlier this month.

“That's maybe the next Holy Grail,” he said. “The real differentiation is really the knitting together all of the various services and creating a better life for our clients.”