Merger and acquisition activity among RIAs has eased a bit this year while deal size has soared, Fidelity reported in its third-quarter M&A review.
"The RIA M&A industry has moved past the M&A frenzy of 2022 and 2023's close mirror to yield a healthier, more purposeful pace," according to the asset manager.
Year to date through the third quarter, RIA M&A activity has dipped by 11% from a year earlier to 155 transactions, while deal size rose 168% to an average $541.5 billion in client assets, Fidelity reported.
Looking at both RIA and independent broker-dealer M&A activity, Fidelity reported 159 deals averaging $652.5 billion in client assets year to date.
There were four independent-broker-dealer transactions year to date through the third quarter — the same number in the same period in 2023 — averaging $111 million in client assets, a 25% increase.
In the third quarter specifically, deal activity leveled off, with the strongest July for transaction pace and total purchased assets since Fidelity started tracking in 2016, followed by the weakest August in deal volume over the past five years and a steady September, the company said.
Overall, third-quarter deal volume trailed the second quarter's by 7%, while purchased assets lagged by 38%, Fidelity reported.
The RIA marketplace has seen "strong, purposeful inorganic growth" this year, Fidelity said.
"Despite the slight pullback, the industry remains active and strong, as firms seek intentional growth after a couple years of unequaled M&A activity," the report says. "Our point of view is that our industry doesn't need to continually break transaction records year after year — in fact, we interpret the slight pull-back as a sign of marketplace health."
Fidelity sees a good runway for M&A opportunity, noting in the report that the industry remains fragmented.
"On our current run-rate of M&A transactions, it may be at least five decades before our industry is at a place where we can start to consider it consolidated," the report says.
Moreover, succession planning remains an industry challenge, with advisors leaving outpacing new advisors. Also, Fidelity noted, private equity interest in the industry remains high, and PE-backed deals represent most transactions.
