With all the hectic pace of M&A activity seen in the US wealth management sphere, how much of the process is about winning and holding talent, rather than about economies of scale or market reach? A survey argues that talent wars are the top reason for much of the deal-making.

The struggle for independent advisors to find and keep the right people has fueled a record-setting merger and acquisition climate, a fact underscored by the hot pace of M&A deals regularly reported by this news service. A new survey of RIAs is also a reminder of why the talent struggle drives industry transactions.

The RIA sector is anxious to find talent even as it gears up for more deal-making, according to the 2022 RIA Survey from Advisor Growth Strategies. The study was based on a poll of 101 independent firms to uncover their perspectives on business management and M&A. More than half of this year’s respondents manage more than $1 billion in client assets, and 77 per cent are fee-only RIAs. 

For the third year in a row, RIAs listed “finding talent” as their biggest challenge, with 23 per cent citing it as “very challenging,” and more than 50 per cent of firms across every size segment describing it as â€śvery challenging” or “challenging.” In years past, talent shared the spotlight with tech and growth as primary hurdles in the RIA industry. This year, RIAs are focused almost exclusively on talent, demonstrating the acute pressure of our current labor market, the authors of the report said.

“Talent is the key to more than just a good valuation in a transaction. We are in the middle of a transformational growth period that is driven by recruiting and retaining talent. The next ten years will be defined by a sharp split between those who execute, and those that do not,” Brandon Kawal, principal at Advisor Growth Strategies, said.

For the first time in its annual survey, Advisor Growth Strategies found that the percentage of buyers or sellers who were “not prepared” for M&A had fallen to 42 per cent, from 53 per cent in 2021 and 51 per cent in 2020. More firms are willing to entertain conversations about deal-making, putting pressure on all participants to clarify how their firm will stand out from the competition.

Firms mainly prefer internal succession to selling up. Seventy-seven per cent of respondents have identified the next generation of owners they hope will succeed them. But a fifth of those have no plan for the transition itself, and the external pressure of soaring valuations continues to complicate internal succession. 

Only 30 per cent of surveyed firms said they would completely rule out a sale. Some 40 per cent said they would prefer to sell to a local partner, but an increasing number would consider an acquisition brand as their preferred partner.

In general, this news service has noted that M&A activity has been far more vigorous in the RIA sector than among multi-family offices (athough many MFOs are regulated as RIAs). Among deals focused more on the ultra-high net worth end of the street have been Tiedemann (Presidio, Alvarium, Threshold), Pathstone (Federal Street, Convergent, Cornerstone) and Fiduciary Trust International (Athena Capital Advisors).  A desire for economies of scale to deal with rising regulatory costs and tech spending, and the willingness of firms to sell, have fueled the process. However, questions remain about how much of this consolidation will bear fruit. Recent figures suggest that the M&A trend is slowing down as valuations have risen.

 Firms such as Hightower, CI Financial, Mercer Global Advisors, Merchant Investment Management and other prominent acquirers have been among the most vigorous acquirers of RIAs and related businesses.