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DOL Rule Delay Spiked Wealth Management M&A

By Thomas Coyle April 21, 2017

Mergers and acquisitions involving asset- and wealth- management firms increased sharply in the first quarter of 2017 — mainly due to a surge in wealth firm transactions, says PricewaterhouseCoopers.

The accounting firm says the delay of the Department of Labor’s proposed fiduciary rule influenced wealth management M&A activity.

Since President Donald Trump’s inauguration in January, the so-called DOL rule’s first-phase launch date has been pushed back to June from its original April 10 start date amid talk of further delays and dilution of the new regulation. In consequence, PwC says wealth firm “buyers appeared more confident to execute deals in this space.”

The number of wealth deals edged up to 25 in the first three months of this year compared to 22 in the first quarter of 2016.

In a sharper contrast, there were only 13 wealth transactions in Q4 last year. The quarter-on-quarter increase was the result, says PwC, of pent-up demand. Buyers apparently went slowly last year in the runup to the DOL’s new retirement-account rule, which calls for more stringency.

The stand-out serial buyers in the wealth arena were Boston-based Colony Group, which purchased four firms in this year’s first three months, and Santa Barbara, Calif.-based Mercer Advisors, which bought two.

But foreigners were reluctant to buy U.S. wealth managers in Q1 2017. There was only one European buyer and one Asian buyer against five from the two regions in last year’s December quarter. The reason? “Many potential foreign investors are on the sidelines to try and understand the changes this new administration may bring about that could impact deal value,” according to PwC.

Set aside wealth management and to some extent hedge-fund deals, however, and overall M&A activity around traditional asset managers slowed “as the industry continues to face uncertainty and challenges with investors gravitating towards lower-cost players and as players face pressure in the areas of distribution, costs management, product differentiation and people retention,” says PwC.