Schwab Sees Growth, Cash Flow Fueling RIA M&A Boom

Friday, October 14, 2011 06:58
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Schwab Sees Growth, Cash Flow Fueling RIA M&A Boom

Tags: M&A

Registered investment advisors remain a hot commodity in the merger market, although we still have a way to go before deal flow reaches the depth we saw before the recession.

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According to Schwab data, 44 advisory firms have gotten bought so far this year, transferring a total of $37.7 billion in AUM to their new owners.

 

That puts us on track to tie or slightly exceed 2007 in terms of sheer number of deals being made, but we will almost certainly end 2011 below that year's staggering $90 billion in AUM in play.

 

Still, the trends point upward, David DeVoe, who runs Schwab Advisor Services' strategic business development efforts, tells us.

 

Part of what's driving street-level RIA consolidation is basic demographics. Principals are getting older and as more approach retirement age, they're selling what they've built.

 

But from the buyers' perspective, independent advisory firms are a great investment DeVoe says.

 

These firms are generating profit margins of 20% to 25% and organic growth of 20% and up. What's not to love?

 

As a result, he sees the private equity firms that have moved into the advisory world to keep picking up assets whenever they're available.

 

And with next-generation firms like Focus and HighTower aggressively rolling up smaller rivals, consolidation forces within the channel are rising too.

 

DeVoe even sees banks -- absent in the wake of the recession -- returning as buyers.

 

With all these forces in play, RIA consolidation seems to be a positive development. This is not a desperation move.

 

The contrast to what we are seeing in the independent brokerage channel, with several distressed firms on the block for months, is revealing and heartening.

 

 David DeVoe, managing director of strategic business development for Schwab Advisor Services.

 

 

 

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