The economy is on pause and scores of businesses are facing huge losses, but for private equity the hunt for wealth management firms continues. Why? Because the demand for financial advice may be even more acute now and advisory firms offer a welcome annuity stream of reliable income in spite of overall market volatility.
“We think that the RIA space is just a terrific industry, for all of the reasons it was two months ago, and for the reasons it was two years before that, and five years before that,” says Roy Burns of Boston-based PE firm TA Associates, whose firm owns Wealth Enhancement Group, said.
“The tailwinds of independent advice and supporting clients through thick and thin really doesn’t change based on economic activity. It’s a needed service, clients need advice, and the best way to get that advice is through a fiduciary.”
Hightower CEO Bob Oros, whose firm has acquired numerous broker teams and wealth management teams the last ten years and has the financial backing of Boston-based private equity shop Thomas H. Lee Partners, said that his firm is continuing to do deals while working completely remotely.
On April 1, Hightower announced it would buy tax and estate planning specialists, Wellspring Associates of Atlanta, and has several acquisitions in its pipeline.
Flush with capital from years of unabated fundraising, private equity has been slurping up wealth management firms for the last 10 years. Outside of the big wirehouse brokerage firms like UBS, Wells Fargo WFC and Bank of America Merrill Lynch BAC, the advisory business is fragmented — many firms have aging advisors and are lacking viable succession plans.
The industry, which has flourished despite the rise of robo-advisors and passive investing, is ripe for consolidation. Ultimately, the payback of investing in wealth managers could be greater than the typical investments in their two-and-twenty buyout funds.
The high net worth clients of wealth managers are increasingly investing in alternative assets, the stock-in-trade of PE firms.
In the last quarter of 2019, according to PwC, mergers of wealth management firms combined for $26 billion in disclosed deal value across 50 deals.
Over all, there has been a steady growth in deals in the business, last year more than 100 wealth management firms were snapped up compared to about 20 in 2010 and about 80 in 2015.