Get set for a big wave of asset concentration and consolidation, according to one longtime industry observer.

Within a decade, only about 150 large, profitable wealth management firms will dominate wealth management, according to a new forecast co-authored by Mark Hurley, chairman and CEO of the Fiduciary Network.

"The ultimate shape of this industry a decade from now is one in which 150 or so extremely profitable, large firms will manage the vast preponderance of assets," according to the firm's report, Brave New World of Wealth Management. "The industry’s remaining 19,000 participants … will remain in business indefinitely [but] be marginally profitable and have little enterprise value."


The report, which Hurley says counted 19,000 RIA firms, divides them into three tiers:

  • About 200 "evolving businesses," with significant enterprise value, set up to survive a founder's exit.
  • 1,000 to 1,200 "tweeners," with greater scale and profitability but retaining a founder-centric model.
  • Almost 18,000 "books of business," with low revenue and minimal succession/strategic plans.

According to the report, while a relative handful of those "tweener" firms will either adapt and move up a tier or merge into larger firms, most will devolve into the lower group, leaving the greatest chunk of wealth in the hands of the largest firms.
"The guys taking the tweener strategy have been brilliant," Hurley says. "They have made an incredible amount of money; they're some of most successful people in industry. But we think [their strategy] will become unsustainable."


The shifting landscape boils down primarily to a few ongoing economic trends, the report says. The consolidation of wealth into the hands of fewer clients has created greater industry competition; an aging client base has started moving into a distribution phase, pulling out capital and moving it into lower-risk assets. Meanwhile, firms face a rise in operating costs, propelled in part by a talent squeeze as well as increased client acquisition and compliance expenses.

The critical issue now, says Hurley, is the age of the first generation of advisors -- many of whom are trying to figure out how to get their equity out of the firms they've founded.

Some of the top- and mid-tier firms will wind up in deals, but those are easier said than done. Just ask Mark Germain, founder and CEO of Beacon Wealth Management, who's spent the last year in conversations with various merger partners and recently abandoned one deal after five months of negotiations. "The challenges are enormous," says Germain, whose Hackensack, N.J., RIA has $300 million in AUM. "I think the most important thing is that the RIA has to figure out what his objective is, before he even goes into the process."


Hurley, meanwhile, isn't quite an disinterested bystander. Fiduciary Network invests in wealth management firms, buying non-voting, minority stakes to help firms fund, among other things, internal ownership transitions or acquisitions -- so Hurley says he's been "up to my knees" in various M&A talks.

But of the roughly 25 negotiations he's worked on, only a few have actually closed, he says. He identifies several challenges for would-be buyers and sellers, including mismatched expectations and a lack of emotional preparedness, as well as differing perspectives on pricing, value and what he calls "materiality" -- the ability of an acquisition target to contribute significantly to the acquirer's revenues.

And without selling their firms, many wealth managers will face a tough choice -- either invest in talent and infrastructure to shift the firm's trajectory and make it a top-tier firm, or watch assets get wound down as older clients stop contributing funds and begin to wind down their portfolios.

That bifurcation, Hurley says, is what will drive the concentration of assets into the largest firms. "As people acquire other firms, of course, that concentrates assets. But that doesn't drive concentration," he says. "What does [drive it] is the decline of the guys in middle, whose clients will consume their assets."

Read More:


Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access