Most of the sector’s recent press has focused on M&A trends and the SEC’s proposed advice rule, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the industry.

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In Hot Seller’s Market for RIAs, Hungry Buyers are Doubling Upfront Cash

by Charles Paikert, Financial Planning

RIA transactions are interesting in that, unlike many companies in other industries, the source of value for RIAs isn’t an asset that shows up on the balance sheet.  Instead, RIAs derive value from an assemblage of intangible assets including client relationships, employees, and unique firm cultures.  This can pose a challenge for RIA transactions because transferring these types of assets to a buyer can take time and effort on the part of the seller.  The typical solution has been to structure RIA deals with a substantial portion of total consideration paid out over time and contingent on the future performance of the target firm.  But recently, as RIA deal activity has accelerated, the amount of cash that sellers have been able to get upfront has increased from 30% to 60% or more.  More favorable deal terms, high valuations, and a bull market bolstering AUM all point to an attractive seller’s market.

Fidelity: Aggregators Taking on Bigger Role in RIA M&A

by Ian Wenik, City Wire USA

New research from Fidelity shows that RIA aggregators and PE firms are playing an increasingly active role in RIA M&A activity.  Fidelity found that RIA aggregators – such as Focus Financial Partners (which recently submitted IPO filings), HighTower, and Kestra Financial – accounted for more than two-thirds of RIA M&A activity during the first quarter of 2018 versus 47% during the first quarter of 2017.

SEC’s Clayton: Comment Period on Advice Standards May Be Extended

by Melanie Waddell, Think Advisor

SEC chairman, Jay Clayton indicated during a House panel oversight hearing in late June, that a lengthier comment period may be needed for the commission’s advice standards proposal.  While no decision to extend the deadline has been made yet despite pressure from various advisor advocacy groups for more time, Clayton indicated that he thought the “lengthy” 90-day comment period would suffice and that the agency “should not take forever.”  The SEC advice rule was officially proposed in April and the comment period is scheduled to end August 7^th.  The proposal marks a major step towards unifying the standards of broker-dealers and investment advisors.

SEC Hits the Road to Hear Investors’ Thoughts on Best-Interest Plan

by Bernice Napach, Think Advisor

On a related note, the SEC announced Friday that Chairman Jay Clayton will be holding a series of roundtable discussions throughout the country during July to discuss the proposed SEC advice rule.  “Our proposed rules are intended to match our rules with investor expectations and it is crucial that we hear directly from the investors themselves on how we can best ensure that result,” said Clayton on the planned discussions.

It’s Official: DOL Fiduciary Rule is Dead

by Mark Schoeff Jr., InvestmentNews

Late last month, the U.S. Fifth Circuit Court of Appeals confirmed a March decision to strike down the Labor Department’s fiduciary rule, marking an official end to the long-discussed rule which would have held brokers to a fiduciary standard when managing clients’ retirement accounts.

FP50 2018: Independent Broker-Dealers Adapt to Survive

by Tobias Salinger, Financial Planning

Independent broker-dealers face a number of headwinds as the industry shifts from being commission-based to fee-based.  Part of the challenge for IBDs is that the traditional model faces an eroding value proposition, as there is little demand left for only processing transactions.  IBDs have been adapting by shifting towards a fee-based revenue model, and in 2017, fee-based revenue overtook commission-based revenue for the first time.

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In summary, strong M&A activity for RIAs has been fueled by strategic aggregators and particularly favorable terms for selling firms.  On the regulatory side, the DOL rule is officially out for the count, and the industry will continue to focus on the SEC’s proposed advice rule throughout the remaining comment period, which is scheduled to end August 7^th.

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