M&A Just Broke More Records. But What Happens to Clients?

Do we have a deal?

The RIA industry just broke a record for the most active second quarter ever for dealmaking, topping 102 mergers and acquisitions, according to Echelon Partners.  While the deals are typically great for business, bringing on fresh capital and improved technology, integrations are often hard and client experience remains a critical consideration. Will clients stay with their preferred custodians? Will they continue to have access to the same investment products?

“Sometimes firms look for the biggest paycheck, but aren’t paying attention to what the integration will be like,” said Mike Camp, head of client solutions at tax-focused fintech firm 55ip. 

What’s the Dealio?

Beyond volume, the wave of deals signals a continuing shift in the industry’s approach to M&A. Strategic buyers like broker dealers and other RIAs, which account for over 87% of transactions through June, don’t want only scale and returns. Instead, their aim is expanding platforms, entering new markets and building out new investment strategies. Meanwhile, financial acquirers like private equity firms that focus on generating returns, accounted for just 28 transactions.

“If you go back a couple of years, there was this notion of the aggregator, ‘I’m going to accumulate these businesses, and when the market goes up, I’m going to earn double digits on their books,’” Camp told Advisor Upside. Today, acquirers seek integration with the RIAs they purchase, often putting their own CIOs in charge of investment product menus, so advisors can focus on selling to clients and recruiting new ones, he added. Some notable deals from the quarter include:

• Bain Capital’s $825 million acquisition of a 9.9% stake in Lincoln National.
• T. Rowe Price, Alpha Wave Global and Temasek making a $1.6 billion investment in Hub International, valuing the company at $29 billion.

While deals can bring plenty of monetary and operational benefits, selling RIAs have to remember to put clients first, Camp said. “Ultimately, it’s their businesses on the line,” he said. “It’s their name on the shingle, and many of these client relationships are near and dear to their hearts.”