‘Seller’s Market’ Continues for RIA Firms According to 2014 Merger and Acquisition Data from Schwab Advisor Services

The merger and acquisition (M&A) market continues on a consistent year-over-year pace, according to the latest data compiled by Schwab Advisor Services, as independent registered investment advisor (RIA) firms thrive and the independent investment advisory model remains one of the fastest-growing segments of the financial-services industry.1 Year-end 2014 data shows deal pace has remained largely consistent, with 54 completed transactions in 2014 matching the total deals completed in 2013. Meanwhile, in 2014 average deal size ticked upward by 9 percent from the previous year, with assets under management (AUM) totaling $47.4 billion, versus $43.6 billion, respectively.

Buyer types in M&A deals have also remained consistent over the past two years, with Strategic Acquiring Firms (SAF) and RIAs representing the majority of deals. SAFs were the leading buyer category in the first half of 2014, but RIAs inched ahead by year-end, closing 41 percent of the deals in 2014, compared to 38 percent closed by SAFs.

“It remains a seller’s market for RIAs and the industry is in a position of strength as firms grow in value and more advisors and acquirers continue to be drawn to the independent model,” said Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “We are seeing more firms being strategic about their growth, and while many remain focused on M&A as part of that strategy, they are being selective about opportunities and are very mindful of additional factors such as cultural and philosophical fit to ensure a merger or acquisition is beneficial and sustainable over the long term for their firm and their clients.”

Results from Schwab’s 2014 RIA Benchmarking Study1 indicated that nearly 25 percent of the fastest-growing firms2 are looking to make opportunistic acquisitions to bolster their growth. Achieving scale from organic growth and acquisitions, the fastest growing firms reported three times more growth than the average firm.

“The steady level of M&A activity we’ve seen over recent years underscores the growth and maturation of the industry,” said Beatty. “RIA founders and principals are more focused than ever on creating legacy firms that advance and sustain their firm’s culture and values. While many firms seek merger or acquisition opportunities as a means for growth, we haven’t seen the spike in consolidation that industry observers have predicted. Instead firms are considering valuation and completing deals that best address their goals over the long term.”

Schwab Advisor Services reports the findings of its RIA industry M&A research twice yearly (a mid-year and year-end report) as part of a continued commitment to provide advisors with an overview of trends in the RIA space and help inform their decisions when evaluating M&A opportunities. Schwab also offers a consultative approach that helps firms determine their transition options, build a strategic plan to achieve business growth objectives and implement strategies to help firms build scale.

About Schwab’s RIA Industry M&A Research Methodology

Schwab’s M&A research data is compiled and analyzed by Schwab Advisor Services. Schwab’s data reflects transactions involving primarily high net worth and endowment focused RIAs with assets under management exceeding $50 million. The data also includes Advisors-in-Transition who joined an existing RIA and received equity consideration. Schwab does not intend to track all financial-services industry deals or all industry deal types across all channels and the data is not intended to reflect the global landscape of industry transactions or transaction types.

Independent investment advisors are not owned by, affiliated with or supervised by Schwab.

About Schwab Advisor Transition Services™

Schwab Advisor Transition Services helps advisors think through growing and exiting a business at the right time, with the right people and at the right value. This includes goal setting, evaluating options (internal succession, external sale, and merger or acquisition) and executing a transition plan. Schwab’s Transition Services includes Schwab’s M&A Listing Service, a national online database offered to independent registered investment advisors that custody with Schwab Advisor Services that connects independent investment advisors with firms interested in acquiring or selling their firm, or merging with another firm, and enables advisors to maintain anonymity while soliciting interest and collecting information from other advisor firms. Buyers also can search for investment professionals with books of business who would like to join an RIA firm. Additional information and new transitions content are available at www.SchwabTransition.com.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube and LinkedIn.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

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1About the RIA Benchmarking Study

Schwab designed this study to capture insights in the RIA industry, based on survey responses from individual firms. The 2014 study provides information on topics such as asset and revenue growth, sources of new clients, products and pricing, staffing, compensation, marketing, technology and financial performance.

Since the inception of the study in 2006, more than 2,800 firms have participated, with over half being repeat participants. More than 1,100 advisory firms representing nearly three-quarters of a trillion dollars in AUM participated this year, making this the leading study in the RIA industry.

The RIA Benchmarking Study comprises self-reported data from advisory firms that custody their assets with Schwab. Schwab did not independently verify the self-reported information.

1 Cerulli Advisor Metrics, 2014

2 The fastest-growing firms from the RIA Benchmarking Study are the top 20% of firms as determined by net organic growth (2009-2013 net organic CAGR). This cohort includes 108 firms out of 541, all of which have $250 million or more in AUM. This group represents 91% of the total assets of all firms in the Study. Net organic growth—the change in assets from existing clients, new clients, and assets list to client attrition—is the area over which RIAs have most control. Thus, it is the growth metric used for this analysis.

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