🔒Wealth management industry consolidation is ‘happening at breakneck speed,’ experts say

The wealth management industry has been consolidating for the past decade, but the pace of merger activity has picked up markedly in recent years as smaller firms look to grow or sell their businesses, experts say. The dealmaking has been particularly active in Connecticut over the past six months.

• In April, three deals were announced: Investment adviser RiskBridge Advisors LLC in Norwalk bought Eugene, Oregon-based private wealth management firm Finley Davis Financial Group for an undisclosed sum.
• Connecticut wealth management and investment firm Bradley, Foster & Sargent merged with Rhode Island- and Massachusetts-based Napatree Capital, combining under the BFS name.
• Westport-based registered investment adviser Procyon Partners sold a minority stake to Chicago-based private equity firm Constellation Wealth Capital LLC.
• In March, West Hartford-based financial advisory firm Apella Wealth bought Marrella Private Wealth, a Pennsylvania-based investment adviser.
• GYL Financial Synergies, a West Hartford financial advisory firm with $6.6 billion in assets under management, in November merged with The Colony Group LLC of Boston.
• In September, Mercer Global Advisors Inc., a Denver-based national registered investment adviser, acquired Benchmark Wealth Management LLC of Old Lyme.

There are about 13,000 registered investment advisers across the nation, making the industry “ripe for consolidation,” said Chuck Failla, board member of the Connecticut chapter of the Financial Planning Association and a principal with Stamford-based Sovereign Financial Group. “If you have my firm and another firm and another firm all within five miles of each other, and all of us have a compliance office, a trading desk and a support team, it makes sense to combine those,” Failla said. Or, a small firm may join a consolidator, which is a much larger company that buys up smaller wealth management firms, he said. “That’s just the reality of it,” Failla said. “I can tell you that there’ll be fewer firms in five or 10 years than there are today because this consolidation is just happening at a breakneck speed. It’s happening very quickly.”

Failla said the trend is further propelled by registered investment advisers (RIAs) and certified financial planners who are nearing retirement, but have no succession plans. “Let’s say you wake up, you’re 70 years old, and you didn’t do (a succession plan),” he said. “Well, you gotta do something because someone’s got to take care of your clients.” He said consolidation in wealth management is the most discussed topic on podcast interviews he has with small wealth management firms on the industry-focused website www.goRIA.com. “M&A is almost always one of the hottest topics that we have to talk about because it’s so prevalent,” he said.

Succession planning

Last year, there were 269 merger-and-acquisition deals involving registered investment adviser sellers with over $100 million in assets under management, according to New York-based Berkshire Global Advisors. “This was the most ever and represented a 0.4% increase from 2023,” the firm said in a report. The significant upswing in consolidation has been driven by succession planning, firms’ desire to join larger companies with better technology and increased backing from private equity investors, Berkshire said. “Since the surge of interest began in 2021, (private equity) firms and other financial sponsors have demonstrated their strong, increasing appetite for backing RIAs, providing them with capital to execute M&A deals and/or facilitating succession planning for founders/senior management,” Berkshire said. In 2024, private equity-backed buyers participated in nearly 80% of acquisitions involving registered investment adviser sellers with over $100 million in assets under management. In 2020, that number was 50%, Berkshire said.

Consolidation has also been fueled by aggressive growth strategies among consolidators, said Paul Brahim, CEO of the Financial Planning Association and managing director of Wealth Enhancement Group. Minnesota-based Wealth Enhancement Group is a private equity-backed wealth management consolidator that acquires about 20 financial advisory firms a year, having bought 22 last year and 16 in 2023, Brahim said. Since 2013, Wealth Enhancement has grown from 11 branches to more than 130 locations with 1,500 employees nationwide to become the fifth-largest wealth management firm in the U.S. with $107 billion in assets under management. The company has been active in Connecticut — in 2021 it acquired Danbury-based Reby Advisors, which had $727 million in client assets at the time of the deal. In 2016, the firm acquired Darien-based HHG & Company LLC, which had over $1 billion in client assets. Brahim wouldn’t say if his company plans to buy other firms in Connecticut. He did say consolidation has ramped up as financial planners in the 1970s-founded sector either want to retire or pass the burden of running a growing business to a larger firm. “They had to make a transition from practitioner to business owner, and that’s not always the easiest transition because being a financial planner and running a financial planning business are two different skill sets,” he said. “Very often, rolling up or consolidating is a way for an owner or an owner group to be able to partner with a larger entity to create a larger and better practice.” Smaller wealth management firms find merging with a larger player easier and less risky than executing a succession plan, Brahim said. “Transitioning that value internally can be expensive for that second or third generation,” he said. And consolidators often attract private equity investment that funds further acquisitions, he said. “We’re derisking,” Brahim said.