Consolidation continues across the wealth management industry as buyers compete for a limited universe of firms. What’s behind this trend and how might it benefit your firm as you build for the future? What should you know and do before making a deal?

To explore such questions, BNY Pershing recently hosted several conference panel discussions devoted to M&A trends. Taken together, these sessions featured seasoned veterans of hundreds of transactions in the RIA space from large wealth management firms, to private equity investors, to deal consultants and analysts. Here are highlights from these dynamic discussions.

Experts See Durable M&A Trend

Consolidation trends continue in the RIA space as more small firms explore options for the future. In 2022, the industry saw the peak of a robust M&A trend that had transactions nearly triple over the preceding 10-year period. And although overall deal numbers in 2023 were down slightly from that peak, the year saw more than 250 transactions, with larger RIAs showing an increase in deal flow. M&A activity has remained strong in 2024 with 232 deals through November 1 — including a record setting 39 transactions in October, according to DeVoe & Company.¹ Bottom line: There is still a robust M&A market in the industry, with numerous deals being inked with strong valuations.

At September’s BNY Pershing M&A Forum, McKinsey’s Jimmy Zhao presented analysis that envisions continued RIA industry growth and M&A momentum for the foreseeable future. The analysis showed that RIAs are growing AUM at twice the industry average, with significant asset flow due to advisor movement from other platforms. Consolidation has helped the largest firms get even larger: Average AUM of the nation’s five largest RIAs rose about 18% annually over the past decade – from $27 billion in 2013 to $144 billion in 2023. Importantly, the analysis showed that for every RIA transaction each year two new RIAs are being created, indicating a long runway for future M&A activity.

Other presenters at the forum offered their predictions, which included:

• Dropping interest rates may spur more demand for large mergers and acquisitions, in addition to the existing steady flow of small acquisitions.
• The industry may experience financing and rapid absorption of RIAs below $1 billion AUM into firms with $10 billion or more in AUM.
• Aggregators may continue to increase in size and impact, with a number of recapitalizations and mergers of aggregators.
• A flight to quality may continue, as pursuit of scale and protection drive consolidation trends.

Attendees at the M&A Forum were similarly bullish. About two-thirds of them reported their belief that M&A activity will accelerate in 2025 and that valuations are likely to remain the same for a period of time, rather than rise or decline.

Embracing Interdependence

Independence – it’s at the core of every RIA’s origin story and culture. As a consequence, many firms worry that they will compromise their client-first pledge and team coherence by striking a deal with larger players or private equity firms. Panelist Michael Nathanson of Focus Financial Partners encouraged firm leaders to navigate a shift in mindset from independence to evolved interdependence. “You must always serve clients first, but by coming together with others and giving up just a bit of what you perceive as individual control, you can support an even higher level of client service,” Nathanson said.

Deal veterans said that RIA firms would be well served by digging in and analyzing all aspects of their business fundamentals. Such diligence could drive higher valuation in any merger scenario and will inform strategy decisions even if no deals are pursued. If there is momentum behind looking for a deal, Mike Wunderli of Echelon Partners advises firms to assemble a dedicated deal team. “It’s absolutely essential to have a deal team that can focus intently on producing data and information, scoping and assessing options, and sketching out various scenarios,” Wunderli said. The detailed outputs from the deal team will serve to present the RIA to a larger buyer pool which, by extension, enhances the optionality of finding the right partner.

Most prospective sellers calculate their firms’ value as multiple of pro forma earnings before interest, taxes, depreciation, and amortization (EBITDA) annually. But panelists noted that buyers may look at variations such as actual trailing 12-month EBITDA, run rate EBITDA, or adjusted pro forma run rate EBITDA as well. Such analyses generate different valuation numbers, so it’s incumbent upon the seller and buyer to agree on the wealth manager’s profitability profile and the associated value.

At one panel session, this rule of thumb for seller “attractiveness” emerged: For a wealth management firm to tap into the largest pool of potential buyers, it should be generating at least $2 to $3 million in revenue and at least $1 million or $2 million of pro forma EBITDA annually.

Panelists noted that recent high deal valuations have caused many sellers to embrace unrealistic expectations of what a buyer might pay for the business. They cautioned that even though media reports of 18-times-EBITDA acquisitions are common, this doesn’t mean that every deal will generate a similar valuation. Even well-run businesses may not justify such a high premium, because many buyers are becoming more discerning about the organic growth they're underwriting and EBITA adjustments they’re being asked to analyze.


The Art of Integration

M&A veterans on the BNY Pershing panels emphasize the critical importance of integration in generating desired outcomes for all parties after deals are consummated. One panelist stated that if you want to be a successful acquirer, you must become a very good integrator. “Candidly, the deals are priced today at a multiple that if you don't integrate well, they don't really make sense,” said Jim Dickson of Elevation Point. “The success is really defined as the integration.”

As with all strategic undertakings, integration varies by circumstances. A few acquirers opt for a minimal level of integration across RIAs after deals are executed. But, these are the most common approaches:

• Partial integration – which might involve middle and back office integration, while allowing the firms’ front offices and advisory teams to continue operating independently. The industry has seen many successes through this approach, because it offers benefits of scale and maintains a wide apertured of firms with which to transact. The challenge is that the operational platform must be extremely flexible to support the array of tools and tech that advisors use to serve their clients.
• Full integration – which manifests as enterprise-wide integrations across business processes, technology, teams and talent management approaches. For acquirers it can be difficult to source and engage RIA firms that have cultures and strategies that can conform to such tight integration. However, it can pay off with superior outcomes: it’s easier to execute critical initiatives, to leverage scale, and to deliver key benefits that satisfy both seller and buyer.

According to Wealthspire’s Hoyt Stastney, most industry acquisitions today are being carried out by serial buyers. “There’s a whole professional class of buyers that focuses exclusively on M&A activity at the larger firms,” he said. Consequently, the seller’s deal team might feel outmatched and wary, which is why direct, honest negotiations and clear documentation of discussions and decisions are vital at every stage.

Communications within and across the organizations are critical, too, to avoid different messages circulating throughout the buyer’s and seller’s teams. This will serve to manage expectations and help prevent disappointments down the road. Misunderstandings do plenty of damage. In February 2024, Financial Advisor Magazine published the results of a survey of over 300 advisors who had done deals in the past decades. The result: Only about half were satisfied with how things had turned out.

Panelists advise RIA sellers to conduct careful due diligence on potential buyers. Research what the potential acquirer has done in the past and talk with those who have been acquired by the same buyer to understand the integration process, the challenges and revelations. Questions to ask: Is the acquirer living up to expectations? Is it making the wealth management firm stronger by facilitating growth without getting in the way?

Closing the Deal

Experienced dealmakers concur on this point: Activate deal teams early. Deals encompass a complex web of agreements involving operations, investments, financing, debt and other matters. Whether you are a buyer or seller, there are countless details that must be discussed, negotiated and agreed upon. The earlier both parties’ M&A attorneys get into the documents, the clearer the opportunities and pitfalls will become.

Several of the BNY Pershing experts advised sellers not to close the deal until there’s been agreement on all the elements. They caution against ambiguity in any aspect of the deal because that can blossom into misunderstandings and ill will later.

The final word: It’s okay to walk away. If you’re not convinced that the deal will meet your strategic goals, it’s perfectly acceptable to end the negotiation. If the deal does not happen, the parties will be in a better position to preserve a positive business relationship.

Parting Thoughts

Through meaningful conversations with thought leaders throughout the M&A space, we’re able to share some key takeaways to consider as you’re preparing your own approach to M&A in 2025.

• Ensure strategic fit and alignment. Determine if there’s cultural alignment between the acquiring and acquired firms. Mismatches in company values, client service models, or workplace culture can lead to integration issues.
• Focus on valuation and financial due diligence. Use multiple valuation methods, such as AUM, revenue multiples, and EBITDA, to determine a fair purchase price.
• Emphasize operational integration. Consider how technology platforms (e.g., CRM, portfolio management systems and trading platforms) will integrate. Compatibility is crucial to maintaining service quality.
• Examine legal, financial structuring and contractual matters. Review contracts with vendors, clients, and key employees. Understand renewal terms, termination clauses, and change-of-control provisions. IN addition, consider how the deal is structured. Choose between asset purchase, stock purchase, or merger structure. Each has its tax and legal implications.
• Set post-acquisition monitoring and evaluation integration milestones. Monitor progress and address issues as they arise. Check in with employees to gauge morale and address any concerns related to the integration process.

For more strategies to navigate the M&A landscape, please contact your relationship team.