Last year’s record number of registered investment advisor, or RIA, transactions has already been eclipsed part way through 2021.

These acquisitions are at an all-time high, with the most diverse buyer universe to date; however, most banks are sitting on the beach, just watching. Since 2019, the percentage of bank buyers has dwindled by more than half, from 23% to 10% this year. Unlike the bank space, which is dominated by a handful of money center banks, the RIA universe is highly fragmented with no dominant leader for now. I predict at every spectrum of wealth management – mass affluent, high and ultra-high-net-worth – there will be an oligopoly of players could become ascendent. Could your bank wealth management platform be one of them?

The RIA industry is ripe for consolidation with 14,000 U.S. players and approximately 250 transactions per year, or about 2% of the space. Additional factors include the accelerating the pace of M&A, including a flood of sponsor capital, an aging bull market, increased costs of doing business, a lack of succession planning and increasing valuations. Banks have consistently worried about the increasing valuations and the fear of buying at the peak. But those that understand wealth management have remained active because when markets fall, the bank’s core deposit business grows as clients de-risk.

Whether it is a dollar deposited in the bank or in the stock market, sophisticated banks want to be the trusted advisor in the center of that decision. Banks succeeding in wealth management have boards and executives that are fluent in wealth, constantly reviewing their client offering to see how an acquisition might be complimentary. A few examples include Providence, Rhode Island-based Citizens Financial Group, which built an ultra-high-net-worth solution via the Clarfeld Financial Advisors acquisition; Chicago-based First Midwest Bancorp entering a new state via the Northern Oak Wealth Management acquisition in Wisconsin; and Goldman Sachs Group going downstream towards a more mass-affluent client base with the United Capital acquisition. Banks oriented toward the longer term are leaning in and continuing to build their wealth platforms, and will dollar-cost average rather than trying to time the markets.

Banks have experienced varying degrees of success in RIA acquisitions for a number of reasons. Those that are less successful view wealth management as an off-the-shelf product or more fee income to pad margins. Banks that overpromise and under-deliver on distribution or cross-pollination opportunities create poor long-term outcomes. Some banks fail to properly integrate an RIA and assume that changing the name is vital. However, separate brands are okay – and likely preferable – so as long internal organizational alignment exists. Cheaper valuations should not drive acquisition interest and could indicate a-more troubled RIA; banks may find it preferable to pay a premium for quality and growth. Banks should also leverage thoughtful deal structures that align the RIA’s interests with the institution and drive advisor and client retention; this can be a more effective approach than simply relying on restrictive non-competes or other legalese.

Many banks have several advantages over other strategic acquirers. First, they already have customers that trust the bank with their core business and could extend that to their deposits and wealth, compared to their local RIA. Second, banks tend to have stronger brand recognition and overall presence; there is minimal brand recognition even amongst the largest wealth managers and no appreciation of the vast service differential among the thousands of RIAs. Last and most important, banks have money. On the top of every RIA’s wish list is access to funding as long-term, patient capital.

Do’s of RIA M&A

  • Listen intently to RIA needs and pay attention to their pain points.
  • Educate your board well in advance on the M&A landscape; playing catch-up with an opportunity on your doorstep seldom works.
  • Be flexible and open with deal structures and compensation schemes; bank M&A and RIA M&A don’t directly translate.
  • Move thoughtfully yet expeditiously through an M&A process: this will differentiate you outside of price.
  • Look for and engage sound financial and legal advisors.

Don’ts of RIA M&A

  • Overpromise what your bank can deliver to an RIA.
  • Buy a troubled firm.
  • Leave an RIA on an island and not integrate it internally.
  • View wealth management as an isolated product – it’s a relationship.

Wealth management acquisitions are not for every bank. However, if they’re properly prepared and educated, all bank constituents – shareholders, customers and employees – can achieve success. Don’t be afraid to paddle out and try to find the perfect partner to ride the wealth management wave.

Contributions by: Ralph Puthota, Vice President, Raymond James Investment Banking


Jeff Brand