The wealth management industry is in the midst of a historic consolidation period as increased regulation, new technology and succession concerns spur merger and acquisition activity.

The first quarter of 2017 saw a record 44 deals in the registered investment adviser space, according to data from investment banking firm DeVoe & Co., which specializes in wealth management consulting. Yearly deal volume also exploded to 145 in 2016 from 59 in 2013 – an increase of 146 percent over the past four years.

L.A.-area wealth management firms have been active players in M&A. West L.A.-based Aspiriant has snapped up three wealth management firms in the past two years, including a January merger with Stanford Investment Group. Aspiriant Chief Executive Rob Francais said the firm now has $10.5 billion in assets under management – up from $2.5 billion in 2008 when the firm completed its first merger – and operates in 11 cities.

“Firms that have more scale will be able to weather the issues facing the industry,” Francais said. “A larger institution can implement a succession model and scale helps deal with the perceived threat of robo-advisers and … with the regulatory environment.”

While mergers of private standalone firms, such as Aspiriant, make up a significant part of the wealth management deal flow, there have been notable other transactions. Publicly traded B. Riley Financial Inc., also in West Los Angeles, purchased Wunderlich Securities for $67 million in cash and stock options last month. The deal added about $10 billion in assets to the firm’s financial advisory portfolio.

B. Riley Chief Executive Bryant Riley said his firm views the brokerage and financial advisory businesses as artificially deflated assets primed for a rebound.

“We think (the industry) is a little distressed right now,” Bryant said. “Our basic thesis is that not everyone is going to do everything on an online platform and passive investing is overrated. You can’t just pick a random bucket of stocks without any advice and expect success.”

Present concerns

Riley’s prognostication about the future of the wealth management market does little to alleviate the issues facing financial advisers, especially small and midsize outfits. Regulatory oversight has increased dramatically since the Great Recession with the advent of Dodd-Frank laws, pushing firms to spend more time and money on compliance.

This increased expense for wealth managers has been compounded by the rise of so-called robo-advisers. These digital financial advisory companies, examples of which include New York’s Betterment and Wealthfront Inc. of Redwood City, offer online tools to help investors manage their own money with minimal human intervention.

Prev