More than one-third of financial advisors say they plan to retire within the next decade. That means 120,000 to 150,000 advisors leaving the business.
It also means there will be a lot of succession planning issues throughout the industry, said Chip Roame, managing partner of Tiburon Strategic Advisors. Hosting a research call on succession planning, Roame noted that 45% of advisors say they are “very likely” to sell their firm to a third party, while another 20% are “somewhat likely.”
“You’re talking about a humongous number now,” Roame said. “You’re talking about 100,000 firms being for sale within the next 10 years. That’s ridiculously higher than where we are today.”
Only about 30% of advisors have succession plans ready to roll out upon their departure, Roame said. That figure is up slightly from 2017 (27%).
M&A Activity Trends Up
The financial services industry is seeing soaring merger and acquisition activity across sectors, Roame pointed out. In the financial advisor world, 1,033 M&A deals were closed in 2019, up from 699 in 2016 and 414 in 2013.
Tiburon includes insurance agencies and third-party administrators among its financial advisor M&A statistics. In fact, this category led the way with 649 deals in 2019. There were 133 independent advisor M&A deals last year, up from 103 in 2018 and just 54 in 2014.
When you factor in the number of advisors expected to retire over the next decade, these numbers will likely climb much higher, Roame said.
“Could this number be 5,000 a year in a few years? Yeah, it could,” he said. “That would be what the data would suggest, that this number has to keep going up. Because advisors, a lot of them are baby boomers and they’re going to sell their business, or they’re certainly going to retire and they’re probably going to sell their businesses.”
Insurance agencies were hot properties in 2019, with Accrisure leading the way with 98 acquisitions. The company touts itself as “the industry’s fastest-growing insurance broker, delivering high-quality insurance and risk management services and solutions through our global network of Agency Partners.”
Accrisure has closed 410 M&A deals since 2015. Hub International is in second place, with 51 deals in 2019 and 241 since 2015.
Among fee-based financial advisors (RIAs), there were 123 M&A deals in 2019, also a record high. Roame expected this number to go much higher.
“My guess is five, 10 years from now, this number might be 1,000 per year,” he said. “I think we’re at the early stages of this trend right now. So certainly it’s a slope up, but I don’t think 123 transactions is all that many in the big scheme of life.”
In the independent advisor channel, Roame offered several predictions going forward:
Substantial growth ahead that will be dominated by four groups of acquirers — financial advisor aggregators, strategic buyers, competitors and employees.
The new group of independent advisor aggregators, led by Focus Financial Group, will continue to succeed.
Strategic buyers, CPA firms and retail banks, will return. “We believe that CPA firms and retail banks will want to buy RIAs over time,” Roame said.
Mid-tier financial advisor firms to capitalize on fill-in opportunities. “Maybe if you’re a $500 million advisor and you can buy a $100 million advisor, maybe to enter a new city, I think that’ll become quite common,” Roame said.
Fee-based financial advisor firms will be the primary M&A targets.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org. Follow him on Twitter @INNJohnH.
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