Are Wealth Management Firm Owners Missing an Opportunity?

New Fidelity® Clearing & Custody Solutions M&A Report Highlights Continued Industry Consolidation
— With Total Number of $100M+ RIA Deals Down 25% in 2016, Report Outlines What Types of Firms Buyers Are Looking For

  • Financial Planning
  • Trends
  • Wealth Planning
  • Financial Planning
  • Trends
  • Wealth Planning
  • Financial Planning
  • Trends
  • Wealth Planning

BOSTON — Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to registered investment advisors (RIAs), retirement recordkeepers, broker-dealer firms, banks and insurance companies, today released the Fidelity 2016 Wealth Management M&A Transaction Report, which highlights the RIA mergers and acquisitions through the end of 2016. The report focuses on Large RIA Acquirers, defined as wealth management firms with $1 billion+ in assets, strong management and track records of executing well-defined acquisition strategies. Those firms have driven 26 percent of all M&A activity in 2016. The report outlines this business model as well as their approach to acquisition; based on extensive interviews with executives at Large RIA Acquirers, as well as several investment bankers.1

"At our recent M&A Leaders Forum event, acquirers told us that they're being much more selective as they consider which firms to target. They're using M&A as means to pursue business goals such as talent acquisition, scale, improved advisor productivity and growth," said David Canter, executive vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. "This is a cautionary tale for firm owners, who may not yet consider themselves 'sellers.' There's a tipping point where the valuation of their firms may decrease because they're no longer able to help buyers achieve business goals. If growth wanes, they stop investing in the business — specifically their talent, and if their client base is aging without being replenished with younger clients, firm owners may risk losing out on the value they've worked so hard to create."

The majority of Large RIA Acquirers have a set of characteristics they prioritize, which they consider essential in a target firm, including location, size and fit. The report, leveraging insights from acquirers, outlines the four attributes that firms typically look for in their assessment of "fit":

  1. Client experience design and execution. Large RIA Acquirers are very attentive to the client experience and want to understand a firm’s process, touch points, and contact frequency, and channels used (including the role of digital).
  2. Similar investment philosophy and capabilities, such as comprehensive financial planning.
  3. Common philosophy on how to treat employees. This can include philosophies regarding compensation as well as criteria for advancement within the organization. As part of this assessment, they're also looking to ensure future employees possess the right skill sets (e.g., technical capabilities, emotional intelligence, leadership) to complement or fill any gaps in their organization.
  4. The right chemistry. Acquirers look for compatible personalities among all partners and associates that are part of the deal. Investing the time to have conversations with all stakeholders can help validate whether the chemistry is right and develop a clear understanding of future roles.

"Firms that are serious about acquisition spend a lot of time identifying what types of firms they want to go after," continued Canter. "And while 'fit' is often extremely difficult to define, they're trying to make that art into more of a science."

In addition to providing a detailed list of transactions for 2016, this new report outlines six characteristics of the Large RIA Acquirer model in their approach to M&A:

  1. Seek to boost growth and increase scale
  2. Access capital through multiple sources
  3. Take a strategic and deliberate approach to pursuing targets
  4. Place a high importance on creating a well-defined shared vision
  5. Believe deal terms are instrumental when finalizing price
  6. Make integration a priority and competitive differentiator

For more information, check out the Fidelity 2016 Wealth Management M&A Transaction Report.

About Fidelity Investments

Fidelity's mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $5.7 trillion, including managed assets of $2.1 trillion as of December 31, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing more than 12,500 financial advisory firms with investment and technology solutions to invest their own clients' money. Privately held for 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

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