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New wave of bank-RIA deals gathers strength

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Big banks, major acquirers of RIAs 15 years ago, have reentered the M&A space with a vengeance, snapping up 15% of deals so far this year as compared to just 3% for all of last year.

That's according to a new study by DeVoe & Co., an investment bank and succession consulting firm that tracks RIA deals on a quarterly basis.

"Banks have essentially quintupled" their market share in a matter of months, founder David DeVoe says.

The new big money players are adding fuel to a sustained boom in RIA dealmaking. DeVoe & Co. has recorded 35 or more transactions for five straight quarters. Thus far, 2017 has produced 82 deals, a 15% increase over the 71 for the same period last year, the study found.

The amount of assets under management exceeded $100 billion this year for the first time since the first quarter of 2015, according to the study.

DeVoe predicted the banks would crank up such a buying spree several years ago.

As they came out of the recession, "they had their own issues rather than deploying capital towards M&A," he says. "A lot of those challenges were overcome a couple of years ago. I actually anticipated they would enter the market sooner."

With the banks back, RIAs' proportional share of deals has dropped, the study found.

While RIAs accounted for nearly 40% of deals last year, they've done only 26% in the first half of this year.

First Republic Bank, for example, has done a flurry of smaller deals, picking up four wirehouse breakaways so far this year, all with less than $1.5 billion AUM, DeVoe says.

"Clearly First Republic continues to be very interested in this space," he says, adding that the bank apparently is happy with the larger RIAs it bought years ago.

After buying Luminous Capital and its $5.5 billion in assets in a headline-grabbing deal in 2012, the bank bought the $6.1 billion AUM multi-family office Constellation Wealth Advisors three years later in 2015.

The banks' entry into the space has disrupted a duet between RIAs themselves and consolidators, DeVoe says.

"Over the last six or even seven years, RIAs and consolidators have really gone head-to-head in acquiring the most firms in a year," he says. "For a couple of quarters, the RIAs were ahead, and then the consolidators were ahead. They generally traded off … between 40% or 45% of the deals."

RIAs interested in selling themselves to a bank should be wary, given that many banks come looking to sell their product lines to RIAs' highly appealing, wealthy clientele, DeVoe cautions.

"Bank deals can be challenging. ... That cross-sell strategy is really tough to implement."

"Bank deals can be challenging," he says. "Overall they have had pretty mixed results. That cross-sell strategy is really tough to implement."

Many RIAs chafe at being told what to sell to their clients. And RIAs that have broken away from larger organizations for the benefits of independence may find it difficult to, once again, become a piece of a larger whole.

DeVoe cited the example of Boston Private, which after acquiring a series of RIAs later sold off Rinet and parted ways with Peter Raimondi, the founder of another acquisition target, Banyan Partners.

Trying to blend the two cultures “was not an easy integration,” Raimondi admitted at the time.

DeVoe says, "Banks traditionally pay higher valuations, but [RIAs] should go into deals with eyes wide open."

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