The Rise Of The “Meta-Firm” – US Wealth Sector M&A Thrives

Tom Burroughes

21 January 2021

Large-scale registered investment advisors are taking shape, driven by a surge of merger and acquisition transactions in recent months, according to DeVoe & Co, a company tracking the sector.

There were 159 deals completed in 2020, up from 132 in 2019 and 101 in 2018, with the latest result setting a record. The surge may have been a rebound from the pandemic that erupted at the start of 2020, although it may also be partly driven by COVID-19 as firms sought efficiencies and scale, the report said.

The figures chime with data compiled by consultancy and investment bank ECHELON Partners, which has also tracked RIA merger and acquisitions and pointed to how figures show a strong increase. Increasing client demands, higher regulation and IT costs, and a desire for some RIAs to retire, have coalesced to push M&A. The trend has seen the rise of “aggregators” that buy firms, as well as private equity houses entering what has been until recently a fragmented market.

In its DeVoe & Company RIA Deal Book, the data showed that the 48 transactions posted in Q4, 2020 created a “new high watermark for quarterly volume”. “We anticipate the surge will likely evolve and continue into early 2021,” the report said.

A standout feature has been the rise of the “Meta-firm” – a set of about 25 large RIAs with differentiated business strategies holding $10 billion-plus of client money, the report said.

“The separation between Mega-RIAs… and Meta-firms...will become increasingly apparent. Over the next few years, the broader industry will evolve more quickly as these organizations grow and have greater influence. Still, we expect smaller and mid-sized firms to continue to exist and thrive,” it said.

To illustrate the point, the report notes the creation of Edelman Financial Engines as an example of the “power of Meta-firms.” “Private equity architected and financed the creation of the industry’s largest RIA. This megamerger of two leading firms yielded multiple strategic benefits. The most evident is Edelman’s national footprint of advisors now serving the individual needs of executives at the hundreds of corporations using Financial Engines’ retirement plan services,” it said.

“EFE’s and Wealth Enhancement Group’s uses of technology to grow faster are also examples of Meta-Firm activity. The companies’ use of data mining, marketing infrastructure, digital message mapping and personalized experiences creates powerful engines of growth,” the study noted. It added that the results of such big businesses’ strategies “speak for themselves”: EFE generated 200,000 prospects in 2020.

Another “Meta-Firm” case comes from Mercer Advisors, the Denver-based firm that has acquired a raft of wealth managers in recent months, operating from a platform of 47 offices in the US.

Such “Meta-Firms” are often big merger and acquisition players, it said. “Focus Financial Partners, Hightower, CAPTRUST, Creative Planning and many other Meta-Firms are growing aggressively through acquisition and improving their organizations in the process. Their differentiated business models and unrivaled scale make them attractive buyers,” it said.

“Given their momentum and characteristics, Meta-Firms acquired over half of the sellers in 2020. Their share will likely increase over the next several years,” it added.

The report noted that the pandemic was a shock for firms that lacked a defined, written succession plan, and the crisis has prompted many business owners to fix this issue.