RIA buyers may be valuing brains over balance sheets.

Mergers and acquisitions in the space remain hot, with 167 deals announced year to date, the most active first half on record, according to DeVoe & Company. But the latest wave of consolidation isn’t just about chasing AUM; many buyers are looking for advisors with expertise in areas like tax planning, retirement and trust and estate services. “We’re much more strategically minded in the acquisitions we’re making, rather than just seeing an AUM number and cash flow number and paying a multiple,” said Haig Ariyan, CEO of Arax Investment Partners.

The M&A playbook may be shifting from a quantity game to a quality one, with firms betting specialized expertise will drive long-term growth.

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The motivation extends to sellers as well. Mid-sized RIAs managing between $500 million and $1 billion in assets often seek buyers that can expand what they offer clients. “For many firms, a key benefit of joining a larger platform is to solve this complex equation,” the report said. “What may take a few years to build internally can often be accessed with the stroke of a pen.”

Ed Mahaffy, founder of ClientFirst Wealth Management with $300 million in managed assets, said he receives at least two acquisition inquiries each week. While he worries some private equity buyers prioritize cost-cutting and eventual resale over client service, he also sees an opportunity for independent firms, especially as his competition gets snapped up by larger firms. “Sometimes [getting acquired] means the little firm can’t provide the service that it used to,” Mahaffy told Advisor Upside. “It’s a lot easier for me to compete against something like that than it is against another firm just like mine that’s willing to go the extra mile.”

RIAs completed 52 acquisitions so far this year, up from 41 during the first half of last year. Arax alone has completed six acquisitions this year, typically adding two to five advisors per deal, with at least two more expected in the coming months. “We’ve seen a lot of high-quality opportunities this year,” Ariyan told Advisor Upside.

Still, RIAs face stiff competition from private equity-backed consolidators that can often outbid them:

• Consolidators have completed 84 acquisitions this year.
• The average seller managed just over $1 billion in assets during the second quarter, with consolidators primarily targeting firms overseeing $1 billion to $5 billion.

You’re Asking How Much? Valuation expectations remain a sticking point. Roughly three-quarters of consolidators say the gap between what sellers expect and buyers are willing to pay is widening. Even so, DeVoe expects dealmaking to remain strong as firms continue to pursue succession plans and greater scale. “Those forces have reshaped the RIA M&A market over the last decade and remain firmly in place today,” the report said.