On the face of it, merger and acquisition activity among RIA firms for the first quarter of 2012 nationwide makes it appear that this year could be the biggest in a decade, according to numbers just released by Schwab.

However, nearly half of the $23.95 billion in total assets under management transacted across 17 deals through March 31 came from one deal.

Veritable, the country’s third-largest RIA with $10.06 billion in AUM, was acquired by Affiliated Managers Group for an undisclosed amount last month.

“The Veritable deal was quite large,” said one industry expert who preferred not to be identified. “The rest is going to be a lot of little stuff. The others are glorified lateral hires. You have to bifurcate (the deals) into businesses and practices. Another way to describe it would be businesses and barbershops.”

The big numbers thus far for this year compares with $43.88 billion in AUM across 57 deals for all of last year and $62.69 billion in AUM across 70 deals for all of 2010. In terms of numbers of deals, 70 in 2010 represented a high-water mark since Schwab first began tracking M&A activity in 2004. However, 2007 racked up the most value transacted in a year with $90.73 billion across 56 deals. Back in 2004, $21.42 in AUM was transacted in 19 deals.

Even without the Veritable deal this year, $14 billion in AUM still is a healthy number, according to Jon Beatty, senior vice president of relationship management and sales at Schwab’s Advisor Services Business.

“Nine of the 17 deals were related to advisors turning independent, so that’s an uptick,” Beatty adds. “It’s also exciting that three of those newly formed firms were over $1 billion.”

The decade-long rise in M&A activity is being driven by the need for scale among RIA firms who are hard-pressed to generate profitability in a market with increasing costs associated with compliance, technology and other factors. Furthermore, as an aging demographic of planners looks for profitable exits to fund their own retirements, the need for deep-pocketed partners will only increase.

“Everybody is looking for scale in the small, medium and large spaces,” Beatty says.

Pointing to this trend, Schwab’s study also found that large national acquiring firms accounted for 53% of all deals in the first quarter of this year, versus 30% for all of 2011. That number has never been higher since Schwab first started tracking M&A activity.

By comparison the number of deals involving regional banks dropped to 8% of the total thus far this year versus a high water mark of 20% in 2010. National banks accounted for the most deals back in 2004, at 37%. By 2011, national banks accounted for a mere 2% of deals. Even that low number was anomalous. Schwab’s numbers show no national banks acquiring RIAs between 2008 and 2010 and none so far this year.

RIAs themselves accounted for 35% of deals in 2012 thus far. That compares with peaks of 44% both last year and in 2009 and just 26% in 2004. 

“These results are another proof point that the RIA market is healthy and thriving,” Beatty says.

Ann Marsh writes for Financial Planning.


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