A weekly update on issues important to the Investment Management industry
Over the next two decades, an estimated $68 trillion is expected to transfer from Baby Boomers and Gen X to Millennials and Gen Z in what has been dubbed the “Great Wealth Transfer.” For RIAs and trust companies, this transition presents both opportunities and challenges that directly impact firm valuations. As client demographics evolve, investment management firms must adapt to retain AUM and navigate the valuation implications of this seismic wealth shift.
For this week’s edition of RIA Valuation Insights, we revisit our whitepaper, “Succession Planning for Investment Management Firms.” The updated whitepaper complements next week’s webinar, “Succession Planning for RIAs: Transition with Confidence,” with RIA team leader and CEO of Mercer Capital, Matt Crow and RIA senior team member and Senior Vice President, Brooks Hamner. You can register for the webinar in the post.
M&A activity in the RIA industry, which had been trailing 2023 levels for much of 2024, experienced a surge in January. This spike set a new record for monthly deal volume, exceeding the high watermark set in October 2024, with Q1 2025 was a record-setting quarter for deal volume. In this week’s post, we review what Q1 2025 M&A data means for your RIA.
Amid stabilizing interest rates and inflation, the asset management industry (and the stock market as a whole) experienced moderate growth over the past year. However, our index of publicly traded asset management firms generally tracked the movement in the broader market, with stock prices for smaller asset managers (AUM under $250 billion) up 4.4% and large asset managers (AUM over $250 billion) up 7.2% over the year ended March 31, 2025, while the broader market (S&P 500) was up 8.5%. With recent tariff announcements instigating a market drawdown as investors brace for an ongoing trade war, what does this mean for RIAs? The prospective outlook for asset managers in the coming months will depend on a few factors, which we detail in this week’s post.
RIAs underperformed the S&P in Q1 2025, with alternative asset managers declining almost 20% after a year of outperformance. Year-over-year, traditional investment managers saw the strongest AUM growth, while alternative managers proved better at converting this growth to revenue. We explore further in our Q1 2025 Market Update.
Higher interest rates over the past three years haven’t had much impact on RIA transaction multiples. As rates started to fall in 2024, we saw the possibility of further support for transaction activity throughout the investment management community. The political and economic environment of early 2025 seems to be pointing to a new risk not seen since the late 1970s, and it isn’t too early for leadership at investment management firms to consider (model) what might happen if we find ourselves revisiting some of the challenges of the Carter years: stagflation.
The wealth management industry experienced remarkable growth in 2024, driven by robust market performance, inflation cooling, and shifts in monetary policy. Contrary to earlier concerns of economic instability, the year delivered substantial growth across the RIA sector, signaling resilience and adaptability in an ever-changing financial landscape. As the wealth management industry looks to 2025 and beyond, the dual drivers of demographic change and technological innovation will play a pivotal role in shaping its future. Firms that effectively embrace these trends—by deepening client relationships and harnessing cutting-edge technology—stand to emerge as leaders in an increasingly dynamic and competitive market.
M&A activity in the RIA industry, which had been trailing 2023 levels for much of 2024, experienced a dramatic surge in October. This spike set a new record for monthly deal volume and brought year-to-date transaction figures through November in line with 2023’s pace. In this week’s post, we look at the convergence of factors driving a surge in M&A activity within the RIA industry and what that means for your RIA.
RIAs continued to outperform the S&P in Q4 2024, with alternative asset managers boasting an impressive 60% price gain year-over-year. In 2024, traditional investment managers saw the strongest AUM growth, while alternative managers proved better at converting this growth to revenue. We explore further in our Q4 2024 Market Update.
It has become a tradition for the RIA team at Mercer Capital to end the blog year with a “unique” annual summary of industry events, riffing off Clement Clark Moore’s classic “A Visit from St. Nicholas.” We hope all of you in the investment management community are enjoying the holiday season and looking forward to the many opportunities of the new year. We look forward to hearing from you in 2025. For now, please enjoy the finest only holiday poem written about money management.
Abu Dhabi has been on a buying spree, announcing this week that their sovereign wealth fund was acquiring CI Financial, taking it private just over a year after a Bain-led consortium invested US$1 billion in the publicly traded investment management firm. We suspect the terms of the Bain deal formed the predicate to this week’s announcement.
Alternative asset managers fared particularly well during favorable market conditions for the RIA sector. Over the past year, both alternative asset managers and large RIAs (with assets under management, or AUM, exceeding $250 billion) outperformed the S&P 500, achieving gains of 64.6% and 37.7%, respectively. As these dynamics continue into Q4 2024, the outlook for continued multiple expansion and robust deal activity for alternative asset managers remains favorable.
Following a year where deal volume in the RIA industry nearly matched the all-time high of 2022, RIA M&A activity has cooled in 2024. Fidelity’s September 2024 Wealth Management M&A Transaction Report listed 155 deals through September 2024, down 11% from the 174 deals executed during the same period in 2023. As RIA deal activity experienced a greater decline than the broader M&A market, we explore what this means for your RIA.
RIAs outperformed the S&P in the third quarter of 2024, with alternative asset managers experiencing the strongest returns amid multiple expansion. All groups examined experienced growth in AUM and revenue year-over-year. We explore further in our Q3 2024 Market Update.
Despite the growth of the defined contributions sector, many RIAs have avoided retirement plans in favor of larger opportunities. This leads to the question: are retirement plans an underappreciated growth opportunity for RIAs?
For several years, RIA consolidation was fueled by cheap debt, compelling acquisition multiples, and AUM growth underpinned by rising markets. Today, debt isn’t free, acquisition multiples have been bid up, and public markets have become dependent on a very narrow list of equities for growth. Despite headwinds, the P.E. thesis of investing in the RIA space: sticky revenue, low capital intensity, and dependable margins, has survived the pandemic and rough market years like 2022. The missing element was and is the inaccessibility of public market equity to cash out the P.E. investment thesis and to provide replenishment capital to do new deals.
Most economists and market participants now believe the Federal Reserve will start cutting interest rates at its September meeting as inflationary trends show signs of easing. Naturally, we’re interested in how expected rate cuts will affect the investment management industry’s transaction multiples. Many industry observers believe anticipated rate cuts will have little or no impact on the sector since most RIAs don’t have any debt on their balance sheets. While it’s true that most investment management firms do not employ leverage in their capital structure, lower interest rates will nonetheless impact their cost of equity and, consequently, their valuations.
One of the most frequently ignored sectors in the wealth management industry may be its first cousin, the independent trust industry. While many still associate trust administration with banks, which account for more than 75% of the space, the growing prominence of independent trust companies is capturing the attention of many participants in the investment management community. In this post, we examine current trends impacting independent trust companies.
Following a year where deal volume in the RIA industry nearly matched the all-time high of 2022, RIA M&A activity has cooled in 2024. Fidelity’s May 2024 Wealth Management M&A Transaction Report (most recent available data) listed 86 deals through May 2024, down 17% from the 103 deals executed during the same period in 2023. In this post, we explore what this means for your RIA now and looking forward.
RIAs underperformed in the second quarter of 2024, with even the largest asset managers facing a decline in stock price in spite of a stronger asset base on which to collect revenue. Despite the price drop, all groups examined experienced growth in fundamentals year-over-year. We explore further in our Q2 2024 Market Update.
Consolidation is a theme that has a lot of traction in the RIA industry. The prevailing narrative is that a growing multitude of buyers are scrambling to compete for a limited number of firms. With the rapid pace of deal activity in the RIA industry, you might expect to see the number of firms decline. Despite consolidation pressures and record levels of acquisition activity, the reality is that the number of RIAs continues to increase, with new formations outpacing consolidation.
Despite persistent inflation, elevated interest rates, and heightened geopolitical tensions, the asset management industry and the stock market as a whole saw a resurgence during 2023. Our index of publicly traded asset management firms generally tracked the movement in the broader market, with stock prices for smaller asset managers (AUM under $250 billion) up 30.3% and large asset managers (AUM over $250 billion) up 22.0% over the year ended March 31, 2024, while the broader market (S&P 500) was up 29.9%. Read more about the market’s resilience and future outlook in this week’s post.
Share prices for most publicly traded asset and wealth management firms trended up alongside the broader market in Q1 of 2024. Alternative asset managers continued to outperform the S&P 500 and other RIAs, ending the quarter up about 12.6%. On a year-over-year basis, all sectors of RIAs experienced growth as the markets rebounded from the 2022 slump. Read more for a full overview of RIA performance.
The CFA Institute Research & Policy Center’s recent report reveals the significant influence of financial influencers (finfluencers) on the investment decisions of Gen-Z, underscoring the urgent need for the wealth management industry to adapt to the digital age. Highlighting a concerning gap, the report notes that a substantial portion of finfluencer content lacks necessary disclosures, potentially leading young investors to make decisions based on biased information.
Despite the challenges posed by finfluencers, the report suggests they offer a unique opportunity for RIAs to engage with the next generation of investors, advocating for strategic partnerships complemented by rigorous compliance and transparency measures. Read the details in this week’s post.
