🔒Glastonbury-based investment advisory firm fuels growth through M&A deals

Last month, Glastonbury financial advisory and wealth management firm Apella Capital LLC acquired NR Smith, a registered investment advisor (RIA) headquartered in Olympia, Washington.

The deal — Apella’s second acquisition of 2022 alone — brought an additional $82 million in assets under management and pushed the firm’s total asset count to more than $2.7 billion.

The latest move, Apella Capital co-founder and Partner David Connelly said, was designed to expand the firm’s geographic footprint for future growth in the Pacific Northwest, while enhancing Apella’s tax-preparation and accounting capabilities through NR Smith’s CPA practice. The firm now has 60 employees and 12 locations nationwide, including offices in Atlanta, Dallas, Denver and San Francisco.

Apella’s growth reflects a broader trend of increased merger activity in the wealth management industry in general, and the growing appeal of registered investment advisors.

Unlike financial advisors with broker-dealer firms and wire houses, registered investment advisors must be registered with the Securities & Exchange Commission (SEC) or a state agency, and have a fiduciary obligation to act in their clients’ best interest. They don’t sell financial products or receive commissions for investment vehicles like annuities.

That’s driven many investors to move their assets to RIA firms over the past 15 years. In fact, RIA market share — as measured by assets under management — has increased from 17% in 2007 to more than 29% in 2022, according to market data from LLR Partners.

In 2021, Investment Advisor Association figures show that the more than 14,800 SEC-registered advisory firms collectively managed $128.4 trillion in aggregate assets. The number of RIA firms has grown in 19 of the past 21 years.

As co-president of Apella Capital, Jim Scanlan, who joined the firm in 2019, has been heavily involved in the company’s M&A activity over the past three years.

“We don’t strive for growth for growth’s sake,” Scanlan said. “It’s the people and talent that drive our [acquisition strategy] and we’re looking for experience and cultural alignment to [continually improve] how we serve our clients.”

M&A deal flow

Apella Capital LLC offers its thousands of clients — which include individuals, families, nonprofits and businesses — an array of services, including college savings, retirement planning, business succession and estate planning.

Rob Martin, Apella’s other co-president, said the firm’s increasing reach has been fueled by a mix of organic growth and acquisitions. He said the firm’s digital assets including its national podcast, “Talking Real Money,” have helped educate both current and prospective clients and driven referrals.

“We teach clients early on to focus on the long term … and to focus on the things they can control and how markets perform over time, even during periods of volatility,” he said.

While the S&P 500 is down 13% year-to-date, Apella’s average annual return over the past 10 years is 14.7%, which has also helped drive the firm’s organic growth, Martin said.

The employee-owned firm has also been aggressive in supplementing that growth through acquisition. Since its 2014 founding, Apella has inked 13 M&A deals.

In October 2021, the firm began working with Wealth Partners Capital Group, a holding company and capital partner to help identify and facilitate acquisitions of other RIAs to accelerate its growth rate. Prior to that, Apella’s M&A deals have been self-funded.

And competition for acquisitions has been steadily growing in the RIA market. According to Echelon Partners 2021 RIA M&A Deal Report, the industry saw a nearly 50% jump in acquisition deals — from 205 in 2020 to 307 in 2021. It was the ninth consecutive year that the number of transactions grew.

In 2021 alone, more than $576 billion in client assets changed hands through M&A deals, an increase of more than 80%, according to the Echelon report.

That trend shows no signs of slowing down. According to a 2022 RIA Edge survey, 45% of all registered investment advisory firms said they anticipate making some kind of acquisition in 2022, whether another RIA firm or “breakaway” advisors from brokerage firms and wire houses.

Scanlan said Apella’s acquisitions have been focused on firms with a similar approach to client service and investment philosophy.

“We want a unified national culture [around those factors] while making sure that each firm [we acquire] maintains that unique culture that had driven their success,” Scanlan said.

With a competitive market for talent, Martin said, Apella Capital, like many employers, has increased its flexibility with remote work opportunities.

“We are not immune to the challenges of the current employment atmosphere and flexible schedules that [can be] top of mind when we recruit,” Martin said.

On the heels of its latest M&A transaction, Scanlan said, Apella continues to explore additional opportunities to expand its footprint and capabilities.

“We’re not focused on hitting a specific number of [acquisition] targets,” Scanlan said, “but at a high level we think we’ll close four to eight [deals] annually.”

Martin added: “We’re going to continue to focus on our core competencies around holistic financial planning.”