The independent wealth management sector is undergoing a dramatic transformation as consolidation accelerates. Mergers, acquisitions, and the growing influence of private equity and sovereign wealth funds are reshaping the industry. Below are the primary factors driving these changes and their implications for advisors and clients, according to FinancialPlanning.
Recruiting Strategies: Rolling Out the Red Carpet
Independent wealth management firms continue to attract advisors from warehouses and other employee-based models. To compete, the largest firms and emerging players are offering alternative affiliation models and comprehensive service options for registered investment advisory (RIA) firms.
Consolidation of Smaller Firms
Large players like LPL Financial, Cetera Financial Group, and Osaic are leading the charge in acquiring small and midsize independent brokerages. While such deals have not eliminated all smaller firms, they are significantly shrinking the independent channel.
Surging RIA M&A Activity
M&A deals among RIAs are increasing at a record pace. DeVoe & Company reported 39 RIA transactions in October alone, marking an all-time monthly high. The firm predicts 2023 will surpass prior years in deal volume, continuing a four-year streak of growth.
Eye-Popping Valuations and Capital Influx
Private equity and other investors are pouring significant capital into wealth management firms, driving valuations to staggering heights. Recent deals have featured valuations ranging from $150 million to over $15 billion.
Internal Consolidation Efforts
Some of the largest firms, like Focus Financial Partners and Osaic, are restructuring internally to streamline operations.
Expanding Business Lines and Fintech Innovations
Wealth management firms are diversifying their offerings to enhance client services and drive revenue. Recent examples include Robinhood's move into RIA custody, BlackRock's acquisition of a private credit firm, and Hightower's purchase of an investment consulting business managing $1.66 trillion in client assets.
The Future of Independent Wealth Management
Despite consolidation, the independent channel remains a fragmented industry dominated by small businesses. FinancialPlanning opines that advisors and clients alike face both opportunities and challenges as the sector evolves. While private equity investments bring higher valuations and enhanced resources, they also limit choices for advisors and threaten the independence that has traditionally defined the industry.
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