RIAs Biggest Buyers of Firms in 2013

"Clearly 2013 was a stronger year for mergers and acquisitions. The second half of the year in particular demonstrates a shift in momentum," he said. "Two quarters with 18 transactions per quarter is a significant uptick from what we've seen the last few quarters and is, I think, a record number of transactions on a quarterly basis for the last several years."

Overall activity increased 20% over 2012, although acquired assets under management fell by more than a quarter. Beatty said this was primarily due to acquiring firms changing their targets, calling 2013 "the year of the tuck-in."

"We saw a lot of deals where billion-dollar-plus size firms were buying mid- to small-size advisors in the form of tuck-ins to grow their organizations and grow their sophistication in terms of offerings for their clients," he said. "There were very few of those peer-to-peer mergers that we've seen in prior years, where billion-dollar-plus size firms were merging with other billion-dollar-plus size firms. That was the primary reason why you saw the deal size go down from the prior year."

DeVoe stressed that acquired assets under management can be misleading.

"If you're comparing the number of transactions versus the assets under management acquired, the former is much more important to look at. The assets under management that are acquired each year are so much more volatile and also have extremes in it. I believe Schwab has backed out some of the outlier transactions, which was the protocol I developed when I was running that team," he said.

DeVoe suggested that U.S. banks' tendency to "sit on the sidelines" over the past several years is coming to an end. "I expect the national and regional banks will re-enter the acquisition space as they seek to deploy the growing cash that they have on their balance sheets with the intention of diversifying their revenue stream and aspiring to cross-sell."

The number of deals has implications for the future of the industry, too, DeVoe said. While an increase is a good thing, it doesn't herald the beginning of a major transition of advisors retiring and selling their businesses.

"Given the number of advisors that are moving to retirement and exiting the business, 50 or 60 deals won't clear the supply that's coming on the market," he said. "Just given the demographics of the principals of this industry, the average advisor being 58 and a growing percentage being a stone's throw from retirement, we're likely to see over 100 transactions per year just for retirement over the next couple of years. When we see numbers that are still under 100 transactions a year, it's concerning to me as one who's part of this community because we have a retirement challenge in front of us. This is an exposure point. It's a risk for the industry."

DeVoe said he expects M&A activity to increase, "potentially even aggressively," over the next seven to eight years as retiring advisors begin implementing their succession plans.