TD Ameritrade Institutional Survey Finds
Mergers, Acquisitions are Top of Mind for Large, High-Performing
Investment Advisor Firms
Some of the largest registered investment advisors (“RIAs”) not
only expect industry consolidation to accelerate in the coming
year, many plan to contribute to this trend directly by making an
acquisition, according to a survey conducted by TD Ameritrade
Institutional1 during its 2014 Elite Summit.
According to the survey, about 72 percent of RIAs predict deal
activity will rise in the coming year, and 10 percent expect a
“significant” increase. Roughly half of the advisors, moreover,
said they are looking to make one or even multiple acquisitions.
The firms of the Elite Summit attendees on average managed more
than $1 billion in client assets.
The majority of these larger advisors view themselves as buyers.
More than two thirds of the respondents don’t expect to sell or
merge in any time horizon, though 11 percent said they would
consider a sale or merger of their firm in the next five years.
The desire among RIA principals to build firms that can sustain
growth be better positioned to endure after they depart, may be
leading more advisors to consider a merger. Specifically, more than
half of the RIAs expect that succession will be the primary driver
of deal activity, while 35 percent said transactions would be
motivated by a push for scalability – the capacity to profitably
add more clients.
These catalysts were mentioned more often than the causes most
often cited for fueling industry, namely margin pressures,
technology expenses or mounting regulation.
Taken together, the survey results show that elite investment
advisors view mergers and acquisitions as an important element of a
broader, long-term growth strategy.
“Advisors are eager to continue expanding, but there is intense
competition for new clients and organic growth by itself takes
time. Acquiring an RIA firm or adding advisor teams can be an
important part of a comprehensive business-development strategy,
for both buyers and sellers,” said Pete Dorsey, managing director
of sales at TD Ameritrade Institutional. “The key for advisors, in
any scenario, is finding the right cultural fit.”
Indeed, elite advisors who are buyers look for more than just
size when assessing potential acquisition targets. The biggest
drivers for a firm’s takeover value are the quality of the firm’s
clients and revenue stream, more so than assets under
management.
Succession
While there’s been a lot of focus on the lack of succession
planning by RIAs, elite advisors in the survey said passing the
reins to a successor is a distant event for their own firms.
Indeed, 20 percent said their firm didn’t have a formal succession
plan.
Even among firms that have a plan, more than a third don’t
expect a succession event for at least 10 years and 17 percent
don’t foresee a transition for two decades. A little less than 6
percent expected to have a succession event this year.
“The term ‘succession planning’ for many advisors has
connotations of giving up control or leaving the business, yet it’s
important advisors have a long-term plan, whether that involves
selling to a third party or transferring control within their
firm,” Dorsey said. “The better framework for this kind of
discussion is ‘strategic planning’ and it’s something every firm
should be thinking about, regardless of where you are in your
firm’s lifecycle.”
Another source of growth is the continuing flow of advisors from
broker-dealers to the independent RIA space. This trend, which
accelerated in the wake of the financial crisis, is expected to
continue and even increase. Nearly 20 percent of the advisors
surveyed said they expect to add new talent from independent
broker-dealers while 10 percent anticipate adding advisors or teams
from the national “wirehouse” brokerages.
Across the industry, there’s been growing interest in “tuck
ins,” which lets financial advisors who don’t want to run a
business join an existing independent advisory firm, rather than
committing to running their own business. Among the elite advisors
surveyed, though, 8 percent planned to add teams in this manner
while nearly half said they had no interest.
Click here for charts offering a more detailed analysis of the
survey responses.
SurveyThe Elite Summit Survey was conducted by TD
Ameritrade Institutional, a division of TD Ameritrade, Inc. Seventy
two registered investment advisors (“RIAs”), who attended the TD
Ameritrade Institutional 2014 Elite Summit, June 10 -12,
participated in an email survey during and shortly after the
conference. The attendees, independent RIAs who custody with TD
Ameritrade Institutional, were asked to share their views on
industry trends, including M&A, succession and recruiting. TD
Ameritrade Institutional’s 2014 Elite Summit gathered 190 advisors
whose firms, on average, oversee more than $1 billion in assets and
include some active acquirers.
About TD Ameritrade InstitutionalTD Ameritrade
Institutional is a leading provider of comprehensive brokerage and
custody services to over 4,500 fee-based, independent registered
investment advisors and their clients. Our advanced technology
platform, coupled with personal support from our dedicated service
teams, allows investment advisors to run their practices more
efficiently and effectively while optimizing time with clients. TD
Ameritrade Institutional is a division of TD Ameritrade, Inc., a
brokerage subsidiary of TD Ameritrade Holding Corporation.
About TD Ameritrade Holding CorporationMillions of
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has time and again been recognized as a leader in investment
services. Visit TD Ameritrade's newsroom or amtd.com for more
information.
Brokerage services provided by TD Ameritrade, Inc., member FINRA
(www.FINRA.org) / SIPC (www.SIPC.org)
1 TD Ameritrade Institutional is a division of TD Ameritrade,
Inc., a brokerage subsidiary of TD Ameritrade Holding
Corporation.
Source: TD Ameritrade Holding Corporation
TD Ameritrade Holding CorporationJoseph Giannone,
201-369-8705Communications & Public
AffairsJoseph.Giannone@tdameritrade.com
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