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Strategic Acquirers Are Growth Opportunity for RIAs

By Alex Padalka August 16, 2016

Strategic acquirers represent a formidable force in the registered investment advisor mergers and acquisitions game, according to a recent report released by Fidelity. But to align themselves correctly for an acquisition, RIAs need to understand the varying needs of the different types of acquirers and what they stand to gain — and lose — in the deal, according to the report.

The RIA sector had 51 mergers and acquisitions in the first half of the year, according to a Fidelity study of M&A transactions involving RIAs with more than $100 million but under $20 billion in assets under management, as well as breakaway advisors and teams with at least $100 million in client assets.

Strategic acquirers have become significant players in the RIA space over the past decade and were behind 20 deals in the first half of this year, according to Fidelity. These acquirers represent a good opportunity for advice firms seeking to build scale, access capital for growth or set up succession, according to Fidelity — but only if advisors understand the various models at play.

Together, strategic acquirers have shifted their acquisitions focus from mere cash flows to building sustainable and integrated businesses, according to Fidelity. But differences remain between how the acquisition would reflect on a RIA’s autonomy and what they can offer, according to the report.

Integrated platform providers such as Dynasty or HighTower Network, for example, would let advisors remain entirely independent while providing access to capital and a solid operating and technology platform, according to Fidelity.

Passive investors such as Fiduciary Network would allow advisors to keep control over operations and voting but wouldn’t provide a platform, although they would give the acquired RIA some access to strategic guidance on capital structures and sub-acquisitions, according to the report.

Sub-acquisitions are expected to accelerate in RIA mergers and acquisitions in the coming years, according to another recent report from DeVoe & Company, as reported previously.

Meanwhile, financial acquirers such as AMG would hold advisors accountable but still allow operation independence while offering some strategic and growth collaboration, although they’re unlikely to provide operation support, Fidelity says. And strategic acquirers such as Focus Financial typically provide for brand and operating independence while giving the acquired RIA support in operating and investment expertise as well as access to capital for succession planning and sub-acquisitions, Fidelity says.

But under a branded acquirer such as HighTower Partners, Kestra Financial or United Capital, advisors can expect a high level of integration built up over time in exchange for joining a common technology platform used by all of the firm’s acquired RIAs operating under a single brand, according to the report.

RIAs need to evaluate the risks and rewards of each model when evaluating or preparing to be acquired; have a clear idea of the benefits their firm would bring to a strategic acquirer; and understand the kind of RIA a potential acquirer could be aiming for, according to Fidelity. In general, however, it’s a combination of demonstrated growth, productivity, profitability and client satisfaction, Fidelity says in its report.

By contrast, a report released last week by DeVoe & Company counted all RIA deals and breakaways with more than $100 million in assets under management and found 71 such deals in the first half of the year, as reported previously, which may include firms with $20 billion or more in assets under management.