RIA deals in 2023 reached the second highest level on record but fell modestly compared to 2022’s numbers, according to a new report by Echelon Partners, an investment bank and consulting firm focused on wealth and investment managers.
Despite high borrowing costs and a more stringent financing environment — due in part to the banking crisis last year — 321 RIA deals were announced in 2023, well above pre-pandemic levels but a 5.9 percent decline from 2022’s record 340 deals. In 2020 and 2019, M&A transactions hovered at around 200 deals per year.
From 2018 to 2023, the number of annual wealth management transactions grew at a five-year compound annual growth rate (CAGR) of 12.1 percent, outpacing other industries.
Echelon notes that the more restrictive financing environment resulted in a slowdown in general M&A activity. However, according to the company, “the wealth management industry has remained resilient due to factors such as fierce buyer competition, business model resiliency (wealth managers are tasked with protecting clients in times such as this), and demographic tailwinds.”
Propelled by larger transactions, average assets per transaction increased by 3.9 percent in 2023.
Private equity continued to play a large part in RIA M&A, with PE firms directly or indirectly involved in 61.1 percent of transactions last year, a slight decrease from the 69.7 percent recorded in 2022.
Similar to 2022, 27 of the 321 deals announced last year involved direct PE investment. But for the first time, “certain serial RIA acquirers, namely Pathstone and Mercer Advisors, received multiple rounds of private equity investment throughout 2023,” according to the report.
Following the overall industry trend, the size of transactions involving direct PE investment also grew to $2.4 trillion in assets, up from $1.7 trillion in 2022.
For years, RIAs, particularly PE-backed RIAs, have been the most active acquirers in wealth management. This number jumped even higher last year, with 71 percent of all deals completed by an RIA acquirer. In 2023, RIAs were involved in 228 transactions, representing $466 billion in assets, according to Echelon.
“Wealth management M&A persisted and remained a bright spot in the general M&A market, underscoring the strong fundamentals of the industry and steadfast commitment of buyers to consolidate the highly fragmented industry,” Echelon wrote in the report.
