The advisory M&A market, replete with new records this year and poised for more in 2026, may nonetheless change shape significantly as smaller firms pull back amid growing competition between mid-sized sellers.

A record 94 deals in the third quarter alone, according to DeVoe’s most recent RIA Deal Book, has put transactions on pace to surpass 300 by Dec. 31, an all-time high. Next year, competition will ramp up further as private equity expands its footprint, the report predicts. To take full advantage, advisors should start making and refining growth and succession plans now.

“Some [clients ask], ‘How do I compete with the PE-backed aggregators?’” said Corey Kupfer, managing partner at M&A firm Kupfer Law. “My answer always to them is that you can’t. Unless you’re going to raise PE capital, you’re not going to compete with them at the game they’re playing. But there’s still room in the market.”

PE-ce of the Pie

Private equity has played an outsized role in RIA dealmaking lately, fueled by the Federal Reserve’s interest-rate cuts that began in 2024 and lowered the cost of capital. Still, non-PE deals consistently make up 30% to 50% of activity, according to Kupfer, and minority transactions in which firms sell a stake smaller than 50% have doubled year-over-year. This means there will be more opportunities for buyers and sellers in the middle of the market than ever before. “There’s a different seller who’s not necessarily interested in getting top dollar, and rollover equity, with a promise of multiple arbitrage,” Kupfer said. “There’s a much broader range of buyers these days up and down the spectrum, and so many different models.”

According to the DeVoe report:

• Sub-acquisitions, which happen when a purchased firm begins pursuing acquisitions of its own, reached a record high through the end of the third quarter, representing nearly a third of all transactions.
• Minority transactions are also up year to date, representing 14% of all deals.
• Medium-sized sellers, with $501 million to $1 billion in AUM, have completed nearly 30% more deals so far this year than in 2024.

Spread the Wealth. The financial advice industry is likely to go the way of the accounting industry as mid-sized companies play a growing role in the M&A market, seeking to acquire a broader range of services to remain competitive as they outgrow boutique clients, Kupfer said. “The market is becoming more sophisticated,” he said. “Firms that are in the middle, their clients … are being pitched by firms that have these comprehensive offerings, and then they have to make a decision on whether they want to build that capacity in house or roll in somewhere that has it already.”

AI your mind.

In good times and bad (mostly bad) advisors have to reassure clients that sticking to their financial plan will keep them on track. Client risk aversion shifts constantly, and advisors must navigate those changes, all while AI becomes more prominent in investment management. As technology takes over more technical tasks, clients will expect human advisors to understand them on a deeper, more emotional level, even in ways they may not fully understand themselves. That means behavioral finance will likely play a much larger role in wealth management in the years to come.

“I absolutely believe the behavioral piece is going to get more important, and concurrently, maybe paradoxically, the technical pieces,” Investments & Wealth Institute CEO Sean Walters told Advisor Upside during last week’s IWI conference in New York City. “Advisors are going to need to be smarter than AI.”

Risk On, Risk Off

It’s not just general market volatility that affects a client’s risk profile, but also their own experiences, said Chris Geczy, adjunct professor of finance at the Wharton School. Investors who have lived through periods of low returns often shy away from future risk. “If we had a crash yesterday, guess what? Today, it’s harder to invest,” Geczy said during a panel discussion at the conference. “And yet, when we look at the greatest investors of all time, they may literally invest on the day of the crash.”

Market losses can leave long-lasting psychological marks, like millennials’ hesitancy to buy homes, for example. While today’s housing market is expensive, many still carry the emotional trauma of the 2008 financial crisis. “Five or six decades ago, people were buying homes in their 20s and 30s,” Geczy said. “Now the average age, depending on the part of the country, is in the 40s or 50s.”

But risk aversion can “echo” across generations, too. Someone whose family struggled during the Great Depression may adopt conservative habits, saving diligently and avoiding risk even if they never experienced hardship firsthand. “You don’t necessarily have to have a depression or a market crash to have this affect your life,” Geczy noted.

On the other end of the spectrum are clients whose risk tolerance is too high. These investors are prone to FOMO, a response triggered in the anterior cingulate cortex near the brain’s pain center, Geczy said. “You don’t necessarily feel it on your skin, but you can feel the risk,” he said. “It causes an urgency. You feel stressed.”

Inner Machinations: So, what’s an advisor to do? Communication remains essential. Geczy recommends grouping clients not only by profitability, but also by personality. For more risk-averse clients, he suggests starting with the bucket model, separating assets into short-, medium- and long-term allocations. “If you can get your clients into a situation where they feel safe, they can then make a decision about growth, and then make a decision about higher levels of risk,” he said.

Models are having a moment … and not the runway kind.

More advisors are turning to third-party model portfolios in order to save time and go after wealthier clients. More than 80% of fee-based advisors now use models, a category that has roughly $8 trillion in assets. Models can free up advisors’ time for things like tax management and client meetings. Advisors who outsource spend just 10% of their time on investment management, according to Cerulli’s latest report. Less time spent crafting a portfolio means more time to spend courting ultra-high-net-worth and high-net-worth customers.

“We’ve seen across the board that some of these younger advisors definitely are more open to outsourcing that portfolio management aspect in terms of utilizing models not necessarily created in house,” said Kevin Lyons, senior analyst at Cerulli and an author of the report. “It opens up so much more time for them to really do everything else in their practice.”

No Role Models

Advisors who outsource their investment decisions to model portfolios tend to be younger and build portfolios tailored to each client, the report found. While the main value proposition of advisors used to be investment management — the ability to select securities and build out a portfolio — that’s no longer the case, Lyons said. “So much more of their value proposition today is based around comprehensive financial planning, comprehensive tax management, just other things that go beyond strictly investment management,” he added. There are also different degrees to which advisors rely on outsourcing, ranging from those who use the exact models created by broker-dealers and asset managers to advisors who customize them on a client-by-client basis. According to the report:

• 55,928 advisors are “outsourcers,” meaning that they use models suggested by third parties without modification.
• 55,829 advisors are “modifiers,” meaning they rely on external models but make modifications to fit client needs.
• 177,660 advisors are “insourcers,” which means they use the resources of their practice to manage their clients’ investments or build custom portfolios themselves.

Outta Time. With client expectations growing and service costs getting pushed lower, it was inevitable that models would be tapped as a time-saving measure, Lyons said. “It’s a combination of factors,” he said. “Expectations from clients have grown across the board, and that younger generation of financial advisors tends to show a little bit more willingness to give up that investment management portion.”