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RIA Leaders Expect M&A Activity to Accelerate

Managing a Practice

Notwithstanding eight consecutive record years of RIA M&A activity, advisors believe that it is just getting started, according to DeVoe’s latest Annual RIA M&A Outlook. 

The firm is out with its fourth annual report covering advisors’ collective outlook for RIA M&A, including perspectives about trends in M&A, and current motivations and barriers involved with acquiring or selling. 

Nearly two-thirds (63%) of RIAs responding to DeVoe’s survey believe that RIA M&A will increase during the next year, while the remaining third 34% expect activity to remain at the current pace, believing that the industry is due for a breather. Only 4% believe that M&A activity will decline. “The recent 30%+ year-over-year increases in M&A volume are seemingly driving expectations of a ‘new normal’ trajectory, as opposed to anticipating fatigue and a slowdown,” says DeVoe.  

Remarkably, the 2021 responses are in stark contrast to the previous year. Fielded in the early days of COVID, DeVoe observes that the responses are nearly a complete opposite—75% of advisors expected a decline in M&A, while zero projected an increase. “In retrospect, COVID likely drove M&A activity, as advisors reflected on their goals, mortality, and lack of succession plans. And in many cases, the outcome was the decision to sell externally,” the report observes.   

In looking to 2022, advisors expect increased M&A volume for a variety of reasons, including high valuations, an aging founder demographic and the proliferation of serial acquirers. In addition, DeVoe anticipates that RIA M&A will continue to increase for the next five to seven years. 

According to the report, RIAs have demonstrated the power of acquisition with a growing track record of successful transactions. Moreover, advisors are increasingly seeing a sale as a pathway to achieve succession and the power of scale, while in most cases maintaining control over areas that are important to them. What’s more, the convergence of an aging founder demographic with an industry-wide lack of succession planning will further accelerate M&A activity, the report notes. 


In fact, despite record high valuations, many surveyed advisors believe there is still more room. Nearly 40% responded that valuations would increase in 2022, perhaps expecting that well-financed acquirers will bid up one another or that there are still synergies to be unlocked, DeVoe notes. In contrast, slightly more than half of advisors indicate that a plateau has been reached, believing that the market has achieved equilibrium and valuations will hold steady for the next year. The remaining 8% have decided that “what has gone up, must come down” and signal that the valuations have exceeded appropriate norms and will decline soon.  

Acquirer Motivations

DeVoe further observes that the list of serial acquirers has gone from a few to a dozen or more, with these firms becoming increasingly efficient both in executing transactions and onboarding the acquired firms. As such, RIAs see the success of the consolidators and are “not shy” about following suit, the report notes. In fact, 60% of advisors indicate that they plan to grow through acquisition within two years. 

The larger the firm, the greater the appetite to acquire another firm, DeVoe emphasizes. The survey found that 90% of all firms with more than $3 billion in AUM signaled their plans to acquire during the next two years. In addition, many firms between $3 billion and $10 billion are feeling pressure to ramp up their businesses to better compete. 

And with “people being the lifeblood of RIAs,” DeVoe observes that it’s no surprise that talent is the top motivator for M&As. Three-fourths (75%) of advisors chose acquiring talent as a primary driver, slightly ahead of growing clients and assets (74%), the report notes. 

Other priorities for acquiring another firm include components that support building scale, such as expanding services and capabilities (50%) or extending infrastructure (47%), followed by expanding geographic footprint (43%).

Meanwhile, the prospect of identifying a suitable partner has risen to the top of the “barriers list,” according to the survey. More than 70% of respondents chose this as a primary barrier. A disconnection in price between buyer and seller was also viewed as a barrier. According to one respondent (a buyer), “there continues to be a fundamental divide between what small firms think their firms are worth and what we would be willing to pay,” the report notes. 

Seller Motivations

What motivates a firm to sell? DeVoe observes that because firm leaders have spent many years building their business and may wish to monetize their efforts, it’s not surprising that nearly half (49%) of respondents chose liquidity as a main driver. “Selling all or part of their firm is prudent financial planning while it can give these leaders new energy to work to take the firm to another level knowing they have taken some chips of the table,” the report states. 

Following liquidity, growth of clients and assets was a close second at 47%. Scale also continues to be a sought-after requirement for sellers, with 44% of firms selecting it as a primary driver for selling externally, the report notes. 

On the succession side, DeVoe observes that owners are aging out and many have not solved for succession, finding that 40% of respondents identified it as a driver. As such, when a succession plan is not in place, an external sale may be the only option. The survey also found, however, that a lack of succession planning may not be due to a lack of urgency, but rather an issue of affordability. In fact, 30% of surveyed advisors believe that the next generation cannot afford their firm. “These firms have grown to a size that their valuation is beyond the grasp of the second generation to purchase,” the report notes, adding that as retiring owners reduce their stake, they will most likely need to look for an external purchaser or, in some cases, a partial sale. 

The findings in the report are based on a survey of 131 individuals between September and October 2021, who are senior executives, principals, or owners of RIAs ranging in size from $100 million to more than $5 billion in AUM.