Your Wealth Management Firm Was Acquired—Now What?

For the eighth consecutive year, merger and acquisition (M&A) activity in the wealth management space hit an all-time high. Despite the uncertainty of a global pandemic and market volatility, a record 205 M&A transactions were recorded in 2020, according to the 2020 Echelon RIA M&A Deal Report.

As wealth management firms continue to be acquired by larger organizations, banks, and private-equity companies, it’s vitally important that investors keep in mind that they ultimately control who manages their investment portfolio and financial planning.

Recent M&A Activity in the Wealth Management Sector

Over the past eight years, more than 1,200 M&A transactions were completed with wealth management firms, a huge number that’s expected only to grow in the coming years. Many well-known and respected firms—such as Beacon Pointe, EP Wealth Advisors, and Creative Planning—have been either been completely or partially acquired by private-equity firms while others were purchased by banks or larger wealth management firms.

Additionally, in 2008, there were 75 private-equity firms active in the financial services industry. This number has since exploded to more than 275. “The median holding time of private-equity assets continues to decline,” according to data from Pitchbook. “As of the end of 2019, it’s down to 4.9 years, the first sub-five year reading since 2011.”

Once a wealth management firm is acquired by a private-equity firm, it’s often only a matter of time before another transaction takes place.

The top 25 deals in 2020 accounted for over $1.5 trillion in assets under management (AUM).  All indications are that this trend will continue as wealth management firms are viewed as attractive strategic acquisitions:

  • Providing reliable revenue streams from fees
  • Offering exposure to new geographic markets
  • Delivering profit margins that often exceed 30%

While the owners and executives within acquired firms are financially rewarded, how does it ultimately impact individual investors and their long-term financial goals?

M&A Impact on Investors

With any type of merger or acquisition, it’s safe to say there will be change. Investors can benefit from viewing it as an opportunity to analyze the relationship and decide if the same factors are in place that led them to originally hire the firm.

Consideration Factors

Common factors or changes to be aware of include the following:

  • Management-fee changes over time
  • Significant change to investments and overall strategy
  • Turnover with key contacts and relationships within the firm
  • New products or services with additional fees or commissions
  • Anything else that disrupts or impacts overall relationship and comfort level

While the firm leadership that made the decision to be acquired is rewarded handsomely, it’s important to remember that the investors and their account fees are the ultimate target of the acquiring firm.

The change isn’t always rapid—it could take months or even years—but it will happen. It’s up to each client to decide if the firm is still the right fit for them and their specific needs. To do so, they’ll need to ask themselves if the M&A activity impacts them in a positive manner or if it means they need to make a change to stay on track to reach financial goals.

What to Consider During an Acquisition

If an investor’s wealth management firm has been acquired or consolidated, they should use this as an opportunity to conduct an in-depth review of their investment portfolio, financial plan, and relationship.

This is an ideal time to ask challenging questions to confirm that the new firm is the right fit for their long-term needs and financial planning.

Key Questions

A portfolio review is much more than an evaluation of what an investor owns. It also involves taking a wider view of their financial needs and asking whether they’re being met.

This means asking a series of crucial questions, such as:

  • How much risk is your portfolio exposed to and how do you monitor it?
  • Does it exceed your risk tolerance?
  • Are there options for you to reduce risk while still achieving your investment objectives?
  • What are the total fees that will be charged for the management of your investment portfolio?
  • What would reducing your management costs mean to your portfolio’s overall growth?
  • Are there multiple layers of fees and commissions that will impact your portfolio with future transactions?
  • How are your investments performing relative to appropriate benchmarks?
  • Are there options for enhancing your investment returns?

Next Steps

There are a number of steps you can take in light of M&A activity to ensure your portfolio remains in the best position to reach your financial goals:

  • Evaluate the structure and performance of your portfolio and whether your investments are positioned to help meet both your current and future needs.
  • Ensure your portfolio is diversified­. How does the new firm monitor diversification and when do they rebalance to keep your portfolio within your ideal range?
  • Keep your tax situation in mind­­. Does the new firm manage investment portfolios in a tax-efficient manner or are they focused on delivering returns to their clients?

We’re Here to Help

For more information about how to make sure your portfolio is structured to help you meet your financial goals, contact your Moss Adams professional.

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