M&A Activity Among RIA Firms Remains Steady but Aligning Strategic Objectives More Important Than Ever, Pershing Report Says

May 5, 2015

One in four advisory firms was involved in a transaction within the past five years.

JERSEY CITY, N.J. — Registered investment advisor firms (RIAs) continue to initiate the bulk of mergers and acquisitions (M&A) of RIAs, but the success of these transactions increasingly rests on the alignment of the strategic objectives of the firms involved, according to a report released today by Pershing LLC, a BNY Mellon company. The report, Real Deals: Achieving Purposeful Growth with Purposeful Transactions, analyzes RIA deals and offers guidance to firms for determining if or when a transaction is the optimal course of action.

According to the report, one in four advisory firms was involved in a transaction within the past five years. During this period, nearly half (48 percent) of all deals involved RIAs transacting with each other. RIA-RIA deals now account for twice the proportion of industry transactions compared with 10 years ago, when banks and other institutional buyers tended to dominate transactions. Although the total of 42 real deal transactions in 2014 is slightly less than the 48 recorded in 2013, the numbers represent a largely consistent level of M&A activity over recent years. Real deal transactions are defined as those mergers involving an RIA or acquisition of an RIA that is retail-focused, and manages $50m or more in assets or earns $500,000 or more in annual revenues.

“RIA deal-making will invariably continue and grow in frequency,” said Gabriel Garcia, director of relationship management at Pershing Advisor Solutions. “Firm owners are increasingly aware of the potential benefits of a transaction and are more confident in initiating one.”

A transaction can result in a host of strategic advantages, the principal of which include: greater economies of scale, accessing new markets, accessing new expertise and facilitating an ownership or management succession solution. But in order to gain any one of these advantages, Garcia urges firms to consider both organic and inorganic growth approaches. Organic growth is achieved from maximizing existing business capabilities such as growing the firm’s existing client base, improving efficiency to increase profitability and reinvesting profits to increase service capacity. Inorganic growth is achieved as a result of a merger with, or acquisition of, another firm.

“While M&A activity is highly regarded as a means of expansion, it is important to recognize that a transaction is not necessarily the only way to achieve growth,” said Garcia. “RIAs must first understand the strategic context of a potential transaction.”

To evaluate whether a transaction is appropriate, the report provides a four-step course of action:

    • Define objectives: The personal objectives of shareholders, the strategic objectives of the firm, and other clearly defined objectives serve as valuable guideposts. Without them, it is impossible to adequately determine whether a transaction is in the best interest of the firm and its shareholders.
    • Identify the problem: Firms are often tempted to pursue any deal opportunity that presents itself. However, a purposeful transaction should help firms address a specific problem such as the need to scale, access new markets, or acquire new capabilities, etc.
    • List all options: While a transaction may take the firm in the direction it wants to go, another initiative might do the same but more effectively. Identify all practical options, inorganic as well as organic, for achieving the objectives of the firm.
    • Analyze and discuss: Conduct a thorough analysis of each option to determine which solution will be most effective for driving the firm’s growth strategy. Review and evaluate the best options for achieving the firm’s objectives from the perspectives of cost, risk, timing, business continuity and associated distractions.

    Industry data and executive interviews, combined with a decade worth of knowledge accumulated by FA Insight through direct consultation with many advisory firms formed the basis for the findings and recommendations posed in Real Deals. The report features five case studies based on a series of interview sessions with executives from a cross-section of leading advisory firms. This edition of Real Deals is the sixth in a series of reports published by Pershing since 2006.

    To obtain a copy of Pershing’s whitepaper Real Deals: Achieving Purposeful Growth with Purposeful Transactions, please visit www.pershing.com/ourthinking.

    About BNY Mellon’s Pershing Advisor Solutions

    BNY Mellon’s Pershing Advisor Solutions is a leading provider of business management, execution and financing and custody solutions serving professionally managed, growth-oriented advisory, wealth management and institutional providers serving clients with complex financial lives.

    Pershing Advisor solutions is a true business-to-business provider offering cutting-edge solutions—from private banking to alternative investments to global capabilities—to help clients to run their business more efficiently and service clients more effectively. Pershing Advisor Solutions LLC, member FINRA, SIPC, is a wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon). To learn more, visit us online or connect with us on LinkedIn or Twitter.

    About BNY Mellon

    BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries. As of March 31, 2021, BNY Mellon had $41.7 trillion in assets under custody and/or administration, and $2.2 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

    About BNY Mellon's Pershing

    BNY Mellon’s Pershing is a leading provider of clearing and custody services. We are uniquely positioned to help complex financial services firms transform their businesses, drive growth, maximize efficiency, and manage risk and regulation.

    Wealth management and institutional firms outsource to us for trading and settlement services, investment solutions, bank and brokerage custody, middle and back office support, data insights, and business consulting.

    Pershing brings together high-touch service, an open digital platform and the BNY Mellon enterprise to deliver a differentiated experience for every client.

    Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. With offices around the world, Pershing has over $2 trillion in assets and millions of investor accounts. Pershing affiliates include Albridge Solutions, Inc. and Lockwood Advisors, Inc., an investment adviser registered in the United States under the Investment Advisers Act of 1940. Additional information is available on pershing.com, or follow us on LinkedIn or Twitter @Pershing.

    About BNY Mellon

    BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries. As of June 30, 2021, BNY Mellon had $45.0 trillion in assets under custody and/or administration, and $2.3 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

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