The breakneck pace of consolidation in the wealth management industry is well observed and seems to accelerate each quarter. ECHELON Partners recently reported all-time highs for deal activity, with the 2022 record-high full year transaction number eclipsed by Q3 2025. New entrants to M&A activity are joining serial acquirers who have already built the industry’s first RIAs with $100 billion in assets under management (AUM). Strategic buyers compete with financial buyers and multiples trend ever higher.
What could possibly go wrong?
As an acquirer ourselves, we have identified issues to address and pitfalls to avoid, including the lack of a common operating platform, the absence of a bulletproof succession plan or organic growth plan, and the importance of discipline in identifying and closing transactions.
The Risk Of Growth For Growth’s Sake
Smart platform RIAs have always preached that true enterprise value can only be achieved with a “common operating system” – in other words, a repeatable structured approach to the delivery of wealth management. Firms that operate in a bespoke fashion without standardization or processes lack the ability to scale, which ultimately costs them value in a transaction or succession.
For roll-up buyers and aggregators, the same is true. The largest aggregators, who have led the mad dash of activity in our space, are currently – and somewhat belatedly – pausing to ensure they can standardize and use a more disciplined approach to operations, investments, financial planning and technology. Newer entrants and strategic buyers would be smart to make this their foundational approach.
These lofty valuations could dampen if deal activity slows.
However, large acquirers garner outsized valuation multiples because of their track record and ability to consistently grow through M&A. These lofty valuations could dampen if deal activity slows, meaning the C-suites of these firms must prepare for hard choices.
Missing The Two Big Ones
Many firms growing through acquisitions attempt to lock up owners and lead advisors through deftly crafted employment contracts and legally binding purchase agreements.
More important than this, firms should endeavor to shore up the second generation (G2) advisors in the practice, identify likely successors and establish a plan to ensure that when the owners are ready to depart, the firm is stabilized and growing.
Getting this wrong could significantly erode the value of an acquisition and ultimately destroy the ROI of the deal. Client retention is key to realizing a value that supports the paid multiple, and there may not be a greater risk to securing retention than fumbling the G2 strategy.
There may not be a greater risk to securing retention than fumbling the G2 strategy.
Also, a plan for steady, repeatable organic growth is critical. Whether through tried and true methods such as referrals, seminars and events, or newer strategies like digital lead generation and social media campaigns, firms must create an organic growth plan over time. Like client retention, organic growth is a lever in any M&A model, and acquirers need a clear and effective strategy to ensure that the modeled growth is achieved over time.
Keeping Your Head When Others Are Losing Theirs
The pressure to grow and succeed in the frenzied M&A market can be intense. Sellers often entertain multiple offers and when an investment bank is involved, bidders and valuations tend to increase precipitously. That said, the ROIs on successful acquisitions remain attractive and the industry remains in the early innings of the consolidation wave, so opportunities continue to arise.
It is simple to say that remaining disciplined is critically important, but beyond valuation multiples, what does that really mean?
Buyers must remain focused on their value proposition and the products, services, technology and processes that ensure they provide value to the firms they acquire. If they cannot provide solutions that will enhance the value of a firm, they’re at risk of pursuing growth at any cost.
Buyers must remain focused on their value proposition.
For example, many firms already operate efficiently at scale, with processes and people to continue remarkable growth. These firms should command a multiple far beyond what we would be comfortable paying. In short, there may not be much an acquirer can add to their firm.
The only remaining tool for an acquirer to make such an acquisition financially attractive would be realizing synergies through wholesale headcount reductions. In a business where people and relationships matter, we don’t view that as an effective approach.
When it comes to building a large business inorganically, these are not easy calls to make. Remaining disciplined may result in slower growth, but we believe the risk of mistakes from not focusing on long-term strategy likely far outweighs sacrificing breakneck speed for a strategy of growth over time.
Matt Regan is President of Wealthcare Capital Management.
