Aggregation Is In The Air For Retirement Advisory Firms As The Big Look To Get Bigger

2019 was a big year for acquisitions in the retirement advisory industry. Expectations for 2020 suggest that even more firms are expected to go up for sale and be purchased by aggregator firms with larger cash flows.

The reality seems to be that with escalating technology and client demands, rising regulatory restrictions and fees racing toward--or already at--zero, many smaller firms are realizing that in order to thrive, rather than barely survive on their own, they need the scale, resources, and capital that larger organizations can provide.

Aggregator firms like CAPTRUST Financial Advisors and Hub International Ltd. are buying up ever more firms and growing up in size, leaving smaller firms further left behind. Hub International, for example, was the most aggressive aggregator last year, scooping up nine firms over the course of the year. The company’s pickups included Global Retirement Partners and two large insurance-related companies — The Insurance Exchange Inc. and SilverStone Group.

David Reich, the San Diego-based national president of Hub retirement and private wealth, told P&I that he expects Hub to keep up this kind of activity in 2020: "We anticipate 2020 will look similar to 2019 with up to 10 or so acquisitions." 

The same goes for CAPTRUST. Back in 2006 the company launched their “NFL strategy,” which is concentrated on having retirement and wealth advisory business in cities with NFL franchises. In 2017, the company set a target of acquiring 50 new businesses over the next 10 years. Last year, CAPTRUST bought five wealth management and retirement plan advisory firms, including FiduciaryVest, which had $13 billion in assets under management.


Operational challenges, downward pressure on clients fees, and growing client expectations are just some of the challenges currently facing retirement plan advisors.  The tough truth is that bigger companies are able to charge less as they scale. Furthermore, unscaled retirement plan advisory shops can no longer survive by just providing plan design and compliance advice to C-suite executives.

In some ways, this extends from the large part that technology now plays in the industry. Advisors need tech that is capable of doing much more, much faster and it doesn’t come cheap. Now, human capabilities need to be mixed with technology in order to be profitable, and that takes capital.

Multiple Employer Plans

The Setting Every Community Up for Retirement Enhancement Act of 2019, commonly known as the SECURE Act, isn’t making things any easier by facilitating open multiple emplyment plans. The National Association of Plan Advisors surveyed 530 retirement plan advisors last summer and found that 36 percent would look to sell their practices if open MEPs became a reality.

This is because open MEPs make it easier to commoditize plans, taking the value proposition away from the advisor.

Is it Time To Sell?

It also happens to be a strong seller’s market. Larger firms with an RIA and multiple offices are becoming prized commodities and can grab multiples in the range of nine to 10 times earnings. There is no knowing if valuations will continue to rise, but at the moment it is a good time to sell.

Obviously, today’s strong market is making its market, as well as the cautious nature facing investors with an uncertain future approaching. Those who think the market is reaching its peak and isn’t too far from a downturn want to get what they can be for things head south.

It makes sense from the buyers market as well. Those who already have the technology and therefore capability to scale can continue to drive down prices. And in a growing marketplace like retirement, where more and more baby boomers are calling it quits with each passing day, the desire to grow makes sense. Furthermore, lending rates remain at historic lows, so borrowing money comes at a low cost.

Therefore, the record highs seen in the M&A purchasing world should only continue to grow in 2020.



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