M&A activity in the RIA industry grew rapidly in the second half of last year catalyzed in no small part by rising demand among leading aggregators and other deep-pocketed serial acquirers. While by most measures the industry remains highly fragmented, the consolidation move is accelerating. In fact, we estimate that by the end of last year more than two-thirds of AUM for wealth management RIAs was accounted for by just the largest 5% of firms.
As the consolidation race heats up, so has the urgency among the larger players to reach scale and establish a national presence and brand dominance in the industry. This may result in an eventual shift in priorities among more competitive RIAs. The table below from Advisor Growth Strategies’ 2021 RIA Survey shows the top priorities for 2021 among RIAs. Increasing manpower, client acquisition, and technical resources top the list. Marketing is a distant fifth. We expect, however, that marketing will catch up as firms with national aspirations recognize the need to shift resources to brand building, awareness, and proactive lead generation.
Source: Advisor Growth Strategies’ 2021 RIA Survey
Robust marketing capabilities among acquirers may also become a more important incentive for prospective sellers. In its recently released 2021 RIA Deal Room report, Advisor Growth Strategies’ points out the ongoing shift in deal structures in favor of increased earnouts and “earn-more” provisions. Sellers considering such provisions are likely to give more value to their potential buyer/partner if that partner provides marketing support and brand awareness to help them achieve necessary metrics.