How Smaller RIAs Can Navigate an Increasingly Competitive Landscape by Aligning with a National Firm

Written By: Rick Kent | Founder & CEO

Mergers and acquisitions activity in the registered investment adviser (RIA) space continues to reach record levels. Echelon Partners, which tracks deal-making activity in the financial services space, reported 2020 closed with the highest number of deals ever, and the momentum has continued into the first quarter of 2021, with deal activity achieving a 65% year-over-year increase

These historic levels of deal making impact every corner of the industry, whether you’re a prospective buyer, seller or just seeking to grow your business. At Merit, we are actively partnering with like-minded firms and are taking an industry-wide view on the latest activity. We believe the pace of transactions will continue across the industry as firms look to grow and stay competitive.

The implications of the current landscape

While the industry is squarely in “consolidation mode,” we are still seeing a notable number of new RIAs emerge, with the majority of these being hybrid firms. More advisors are proactively seeking independence and the ability to chart their own course, and the RIA structure is a good option to consider. At the same time, larger RIAs are making massive acquisitions, fueled by a renewed interest in the financial services industry. In the past, it was difficult for RIAs to obtain a loan for an acquisition, while now we are seeing private equity firms become aware of the opportunity in the space and investing significant sums of money in the most promising organizations.

There are a lot of players in the game now, making it more difficult for buyers to stand out and sellers to differentiate who is truly the best fit for them. Buyers have to do more to stand out and show value from other acquirers, especially as most sellers speak with multiple firms throughout the sales cycle.

The sell-side perspective

Regional firms with established books of business, strong community ties, and an impactful team are sought after in the M&A space. These groups are established enough to find continued success on their own but realize the tremendous potential of aligning with a larger firm. For them, the sale could stand to be the defining moment in its long-term growth trajectory.

Sellers need to consider what it would take – meaning what level of capital investment is needed – to accomplish their long-term goals, promises to clients and to advance the careers of the entire team. Larger firms are seeing 30-40 percent growth every year because of the investment they are willing and able to make in the firm. Without an influx of capital, prospective sellers must assess how much growth the firm can realistically expect to achieve. The seller must see tangible benefits from the prospect of the sale and future partnership, and the sale should accomplish two core roles: 1) fulfill their commitment to clients and 2) add resources that enhance solutions, services and tools for clients.

Larger firms present distinct advantages

A lot of talented advisors across the industry are facing the same challenge: they don’t have enough resources to really succeed. When I first started in the financial services business, I could only imagine what might be possible with the right resources – great technology, large teams of like-minded and experienced professionals and financial resources. Larger firms are better positioned to invest in technology, teams and add the right support systems, like a marketing team, client services teams, compliance and more.

As the industry grows, more firms fall into the “large firm” category and are able to offer expansive services and support. Because of this, the right acquisition comes down to the culture fit. Advisors who find the best partner gain an immediate competitive advantage. Your growth will be faster, and your career more enjoyable (and fun!) all because you will see better results. Consider your legacy and determine what you want to be known for now and into the future. You can take what you built and join with a larger partner who can surround you with resources and help build out the company of your dreams. It is important to seek out a partner who supports this vision and will empower you to continue it, even under their roof.

Our team at Merit is future-focused, meaning we continually uncover opportunities to improve our team, our service offerings and our solutions for our clients. RIAs are rapidly changing the industry and challenging the old way of doing business. We have a strong eye on where the industry is going and we have the resources to support advisors in growing their businesses and establishing a lasting legacy. There are a number of ways to join us, including our Independent Advisor Partners program, acquisitions and ongoing coaching and mentorship. Contact our team to learn more about how we can help you.

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Merit Financial Group, LLC, an SEC registered investment adviser. Merit Financial Group, LLC and Merit, are separate entities from LPL Financial.