Deals Offer Buyers an Opportunity to Reach New
Markets and Gain Capabilities, While Sellers Can Address Succession
Needs
Independent registered investment advisors (RIAs) say they’re
gaining an appetite for expansion through mergers and acquisitions,
and most are setting their sights on small firms and solo
practices. These and other signs point to continued acceleration in
industry M&A activity, with RIAs continuing to lead the
charge.
Across all firm sizes, more than three out of four RIAs
indicated their growth plans include a merger or acquisition over
the next five years, according to FA Insight’s Securing Your
Firm’s Future survey.1 Of those considering a transaction, more
than 60 percent plan to acquire a solo advisor, while 47 percent
intend to buy just a book of business. Forty-two percent anticipate
acquiring firms with multiple advisors.
“For more than a decade, the industry was abuzz with talk of an
‘impending’ M&A boom. After a few false starts, it now appears
the trend is finally about to take hold,” said Vanessa Oligino,
director of Business Performance Solutions at TD Ameritrade
Institutional2. FA Insight became a division of TD Ameritrade
Institutional in 2016.
The financial advisor industry, which on average entered into 42
transactions a year from 2000 to 2014, saw M&A announcements
surge to a record 85 in 2015. Though deal count slipped to 77 last
year, 2016 still ranked as the second-highest since 2000, according
to FA Insight data.3
Over the past five years, roughly one third of transactions
involved a solo advisor folding into a larger, existing practice,
while 15 percent were purchases of books of business. Notably, 52
percent of 2016 investment advisory firm transactions featured an
RIA as the acquirer.
More than a third of respondents to a separate FA Insight
survey4 last year said they were involved in a transaction during
the previous five years, compared with 26 percent in 2014. Now, 76
percent of advisors expect to be in a transaction over the next
five years.
As RIAs increase in size, so too does their interest in M&A.
Among advisors with $1.5 million to $4 million in revenue, 76
percent expect to be involved in a transaction over the next five
years, up from 50 percent who experienced a deal in the previous
five years. Among firms generating $4 million to $8 million, 100
percent expect to enter a transaction, versus 69 percent that did a
deal in the past five years.
A Strategy for Growth and for Succession
For advisors, revenue growth and economies of scale were the
biggest drivers of M&A activity. Other catalysts for increased
activity include a steadily aging population of advisors, some of
whom may look to cash out firm equity as retirement age nears.
Indeed, respondents said one out of four deals provided some
type of succession solution for firm owners. Seeking a succession
solution is a motivator for 30 percent of advisors contemplating a
deal over the next five years.
“Nearly half of RIA shareholders are over the age of 55,5 which
means succession planning is on their radar," said Oligino. "For
smaller advisors without a next generation of talent waiting in the
wings, an acquisition may be the right strategy for taking care of
clients and realizing equity built up in their firm.”
The survey also found that 17 percent of firms completed a deal
to reach a new market, whether expanding geographically or to build
up a presence within an existing niche. Fifteen percent pursued
M&A to add skills or fill a gap in expertise, while 7 percent
did so to increase their service capabilities.
M&A isn’t a silver bullet, to be sure. Some transactions can
fall short of delivering expected benefits, which might be caused
by a bad cultural fit or lack of alignment during the transition.
Still, if due care is taken, M&A can be part of a broader
strategic plan RIAs employ to grow and evolve their business.
One popular strategy is “tucking in” advisors interested in
becoming independent RIAs but not looking to operate their own
business. To help advisors find other advisors for continuity,
succession, mergers and acquisitions, TD Ameritrade Institutional
offers an introduction service called RIAConnect®.
“Over the years, we found that one in four breakaway brokers
chooses to join an existing RIA, rather than go out on their own.
We see that trend continuing,” said Scott Collins, TD Ameritrade
Institutional director of Broker Independence. "Regardless of
whether an advisor is joining a new firm or selling their practice,
the right deal can benefit clients and create a business that might
otherwise have taken years to build organically.”
For more information
TD Ameritrade Institutional will host a webcast on Thursday,
March 23, 4:00pm ET, where survey findings will be analyzed and a
whitepaper, Mergers & Acquisitions in the RIA Industry:
Overcoming the Big Disconnect, will be available for download. To
learn more about the survey or RIAConnect, TD Ameritrade
Institutional clients can contact their strategic relationship
manager. Other advisors can call (800) 934-6124.
Access to the TD Ameritrade Institutional RIAConnect program is
provided by TD Ameritrade Institutional as a service to independent
advisors using the brokerage, execution and custody services of TD
Ameritrade Institutional. TD Ameritrade does not guarantee nor is
it responsible for the completeness or accuracy of the data
provided or for the quality of any product or service. TD
Ameritrade makes no warranty or representation with respect to the
service as to suitability or fitness for a particular purpose. In
no instance should the listing of a third-party be construed as a
recommendation or endorsement by TD Ameritrade.
About the SurveyThe Securing Your Firm's Future survey
was completed in December 2016 through an online survey with the
owners / shareholders of 234 independent RIAs, followed by
interviews and focus groups. The median size for RIA firms
represented in the study was $800,000 in annual revenue. The margin
of error is +/- 5.6% based on a 90% confidence interval.
About TD Ameritrade InstitutionalTD Ameritrade
Institutional is a leading provider of comprehensive brokerage and
custody services to more than 5,000 fee-based, independent RIAs 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
investors and independent registered investment advisors turn to TD
Ameritrade’s (NASDAQ: AMTD) technology, people and education
resources to help make investing and trading easier. Online or over
the phone. In a branch or with an independent RIA. First-timer or
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40 years. TD Ameritrade has time and again been recognized as a
leader in investment services. Visit our newsroom or amtd.com for
more information.
Brokerage services provided by TD Ameritrade, Inc., member FINRA
/SIPC
FA Insight is a product of TD Ameritrade Institutional, Division
of TD Ameritrade Inc., member FINRA/SIPC. FA Insight and TD
Ameritrade are trademarks jointly owned by TD Ameritrade IP
Company, Inc. and The Toronto-Dominion Bank. © 2017 TD
Ameritrade.
1 FA Insight, 2017 Securing Your Firm’s Future Survey, December
20162 TD Ameritrade Institutional is a division of TD Ameritrade
Inc., brokerage subsidiary of TD Ameritrade Holding Corporation3 FA
Insight proprietary M&A database, 2000-present4 FA Insight,
2014 FA Insight Study of Financial Advisory Firms: Growth by
Design, August 20145 Cerulli Associates, Cerulli Advisor Metrics,
2016
Source: TD Ameritrade Holding Corporation
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170321005120/en/
TD Ameritrade Holding CorporationJoseph A. Giannone,
201-369-8705Communications + Public
AffairsJoseph.Giannone@tdameritrade.com
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