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Election and DOL Rule Slowed Wealth Manager Mergers

By Alex Padalka January 25, 2017

Uncertainty about the Department of Labor’s fiduciary rule and the U.S. presidential election caused a decline in merger activity among wealth management firms, according to a recent report from PwC.

In all, the wealth management sector had just 69 announced deals compared to 83 in 2015, representing a 17% drop, according to the report.

Deal activity for the financial services sector overall, which also includes traditional asset managers and alternative asset managers, declined 13% from the year prior, PwC says.

Uncertainty about the DOL rule, which requires retirement brokers to put clients’ interests ahead of their own, is partly to blame for the decline, according to the report. But the rule was also behind Nationwide’s acquisition of Jefferson National, according to PwC, which cites Nationwide’s press release.

Several deals in the wealth management space were made by serial investors, with Wealth Enhancement Group and Mercer Advisors both making three acquisitions each in 2016 while United Capital Financial Advisors and Krilogy Financial each made two, according to the report.

PwC says merger activity in the wealth management segment of financial services has always been high due to fragmentation, but that most deals are of “negligible purchase price.”

The firm also expects the dynamics of the wealth management sector and strategic investors looking for growth to fuel further consolidation among broker-dealers.

To compile their data, PwC obtained information from Thomson Reuters and S&P Global Market Intelligence. The firm excluded minority investments for less than 20% of a company’s equity for deals smaller than $500 million, according to PwC. The report also subdivided the firms into sub-sectors based on the company’s primary business.

But the company’s findings contrast sharply with last week’s report from consulting firm Echelon Partners, which found a 10% rise in the number of deals among independent wealth management firms compared to 2015.

Echelon, whose survey included independent advice firms with at least $100 million in client assets, also found that at least a third of the 138 deals in 2016 were for firms managing more than $1 billion. The firm also said the actual number of mergers could be two to three times higher because tracking wealth management deal activity is “still largely an imprecise science” for various reasons.