Wealth management is a dynamic industry known for its changes and evolution. But 2021 took things to a new level with more mergers and acquisitions than ever before. The 2021 Echelon RIA M&A Deal Report found that transactions skyrocketed in 2021 — and it’s likely just the beginning.
Wealth Management M&A Hit Record Levels in 2021
According to the Echelon report, 2021 brought 307 announced transactions, which beat the previous record set in 2020 by an astounding 49.8%. The RIA deal count has increased for the past nine years, dating back to 2012, but the jump from 2020 to 2021 is the largest increase ever.
Aside from huge overall growth, quarterly deal activity also broke records in 2021. Three quarters reached new highs, with Q4 hitting 99 deals. It’s worth noting that these aren’t just small firms coming together. Of all transactions in 2021, 145 included firms with more than $1 billion in assets, the most in a single year. In total, $576 billion in assets were acquired in 2021.
Private equity was the “biggest winner” in terms of acquisitions – involved in 209 of the 307 total transactions. That percentage accounts for 68% of all M&A transactions, an increase from private equity equaling 55% of transactions in 2020.
Many Factors Fueling M&A Growth
Wealth management is a dynamic field, and there are numerous reasons for the record-setting increase. One of the biggest factors is a stabilizing economy. After a rocky few years due to the pandemic, equity market returns have gotten more robust as investors and the markets at large from the pandemic. In addition, favorable capital market conditions such as historically low interest rates and favorable yields have added fuel to the fire.
Many solos (single-advisor firms) and small ensemble practices have been merging ahead of anticipated tax code changes that would significantly alter their tax burdens. Advisors could be hit with higher taxes if they put off merging with a larger firm. Many of these moves have long been in the pipeline but are now moving forward to get ahead of tax law changes.
The heightened interest from private equity buyers and capital providers has also led to significant changes. Private equity saw a considerable increase due to the rise of technology that allows smaller firms to potentially compete with Wall Street. As a new generation of investors enters the marketplace, technology makes private equity more accessible to a broader range of investors. Firms are merging and changing to get ahead of growing demand.
Record-Setting 2021 Is Just the Beginning. What Will 2022 Bring?
The record-setting run seen in 2021 has been derailed in 2022 as inflation, rising interest rates, and market volatility. However, it’s a short-term “bump in the road” in terms of M&A trajectory. It’s highly likely we’ll still see deals in the triple-digits in 2022 and even higher levels in the years to come.
Echelon believes the opportunity for buyers and sellers in wealth management M&A has never been greater. The record-setting year of 2021 is only the beginning of continued future growth.
Wealth management may constantly be changing, but 2021 proved to be a year of solid growth that instills confidence and sets the stage for more mergers and acquisitions to come.
