Consolidation across the wealth management industry continues with rapid momentum. As options for strategic partners shrink, advisors should remain focused on what’s truly important: maintaining the ability to deliver independent, objective advice to their clients while growing enterprise value and creating a legacy for their business.

Understanding the Consolidation Trend

For well over a decade, consolidation has been an undeniable force in wealth management, and the broker/dealer and RIA sectors are certainly no exception as wealth management models converge. Research from Cerulli highlighted that the number of broker/dealers increased by roughly 27% from 2012 to 2022. In 2023, the top five broker/dealers controlled nearly 60% of all assets under management at b/d firms.

Since then, there have been—and will continue to be—additional transactions as key players aim to increase scale and deliver outsized returns to the financial professionals they serve.

When evaluating any M&A opportunity, it’s important to be selective, ensuring a mutually beneficial long-term partnership for all. Three priority lenses of criteria can support a successful merger.

1. Cultural fit: This is the most critical factor. Even if the deal economics look advantageous, evaluating a firm’s cultural attributes to ensure alignment is crucial. Misaligned cultures and values can lend themselves to business disruption and negatively impact client and employee satisfaction, which is a non-negotiable;
2. Risk assessment: Any firm considering M&A activity must consider operational and regulatory risks involved in the deal to minimize disruption to key stakeholders, and especially advisors’ businesses; and
3. Financial feasibility: The deal must make financial sense for all parties involved.

The Intersection of Succession, Technology and growth

While consolidation remains a key industry trend, the independent market continues to grow rapidly. Since approximately 2017, the independent channel has controlled more wealth than the wirehouses, and I expect this structural trend to continue.

This shift is fueled by the growing need and desire for access to unbiased advice, combined with advisors’ pursuit of greater autonomy to run their businesses how they want to.

The combination of advisor succession and the Great Wealth Transfer is reshaping the industry, with fewer advisors managing more assets. Those who leverage the right resources and partnerships to drive their productivity and growth will have a significant opportunity to expand their business.

At the same time, the pace of change in technology and innovation is accelerating at an unprecedented rate. Having a platform partner that controls its own tech stack, can rapidly integrate new technology and prioritizes advisor productivity will be paramount.

Advisors are looking for partners who understand their business needs, goals and dreams and have the propensity to meet them where they are—and with an appreciation for who they are. They want a partner who enables them to best serve clients in an affiliation model of their choosing while giving them the freedom to use the tools and capabilities they need to propel their productivity and growth. To achieve this, they must partner with a truly scaled player.

Scaling without Surrendering

How can advisors take advantage of scale without diminishing their independence?

• Find a wealth management solutions provider and platform that has kept pace with the rapid innovation we continue to experience. One that has heavily invested in tools and technologies that are vital to growth and efficiency without limitations on investment products, custodial choice, affiliation models and more.
• Ensure autonomy and unique business attributes of the advisor are prioritized if a current partner firm is participating in M&A. Firms that are able to preserve an advisor’s ability to provide independent, objective advice, while bolstering capabilities and resources available through the acquired firm, will be best positioned to support advisors and their business over the long-term.
• Strongly evaluate the cultural attributes of existing or potential future wealth solutions platform partners. Selecting a firm that enhances a sense of community and prioritizes solutions for productivity and growth is key. Firms that engage with advisory councils provide opportunities for collaboration with like-minded advisors and deliver ongoing education and training to create an environment where advisors remain in control of their business while influencing the partnership for the better.

Opportunity for Growth-Oriented Advisors

Convergence and consolidation create an environment where advisors who align with the right partners will gain unprecedented advantages. However, size alone does not create value. The true measure of value lies in a firm’s ability to deliver enhanced capabilities, competitive pricing and innovative solutions at scale while preserving advisor independence, choice and maximum flexibility. Firms that can effectively balance these elements will create the greatest opportunities for their advisors.

Ultimately, it’s up to advisors to grow their business and create their legacy. To do this, they need a committed partner that enables growth and enhanced client service. Now is the time for advisors to assess whether their partner is propelling them forward or holding them back from the tremendous growth opportunities that exist in today’s environment.

Read this article on WealthManagement.com.