The data may suggest that the arrival of mega-scale RIAs operating coast-to-coast, as predicted in some quarters, is starting to come about.

The pace of merger and acquisition activity among registered investment advisors has slackened considerably although the sizes of firms taking the marital route is rising, suggesting some maturation of this industry, new figures show.

There were 32 transactions in the second quarter of 2018, falling from 49 in the previous three-month period and from 33 in Q4, 2017, according to a regular snapshot by US firm DeVoe & Company.

The size of firms making deals, however, is rising, the report said. During the first six months of 2018, 81 deals were signed, versus 87 in the same period last year. This seven per cent fall in transactions is being offset partly by a 20 per cent increase in deal size. The average assets under management of established RIAs selling up have risen above $1 billion to $1.144 billion. Among break-away groups of advisors starting up, their AuM rose from $288 million in 2017 to $369 million during the first two quarters of the year, the report said.

“We are in a unique period of extreme turbulence,” said David DeVoe, managing director at DeVoe & Company. “Quarterly M&A transaction volume has careened to recent record lows, shot up to an all-time high, only to drop back into the basement again. However, when you step back from the detail of the volatility, it is clear that a softening has occurred over the last twelve months,” he said.

M&A activity is being driven by a number of factors, such as a desire by some business owners nearing retirement to cash out of their business; rising costs have put a premium on bulking up to acquire economies of scale, while some private equity and other sources of finance see RIA expansion as a lucrative investment opportunity. (This publication recently interviewed Dynasty Financial Partners about capital infusions into the RIA sector.) Data on the scale of activity can vary: ECHELON, a US investment firm that advises wealth managers on M&A deals, has said that the first quarter of this year saw a total of 46 transactions, and 48 in the second quarter, and the company predicts that the US market will clock up more than 185 deals in 2018.

One of the largest transactions this year, announced in early May, involved a move by Hellman & Friedman, the private equity house, to buy Financial Engines, the US’s largest registered investment advisor, for $3.02 billion, intending to merge it with Edelman Financial Services, a previous acquisition.

DeVoe’s team expect activity to be brisk, even if the shape of deals changes in future.

“Conversations are very active, LOIs [letters of intent] are being signed, but very few final agreements were consummated during the period,” said Vic Esclamado, MD at DeVoe & Company. “Recent polls indicate that despite the recent rollercoaster, advisors expect M&A to continue to increase and plan to be active in a variety of ways,” he said.

The firm’s report also flagged the role of consolidator firms in the space.

“Consolidators like Mercer, United Capital and HighTower are contributing to the trend toward larger sellers, as they target and close bigger deals. And recent comments from the heads of these organizations indicate that this momentum will likely continue,” it said.

The report added that consolidators slightly boosted their share of all deals in the latest quarter, at 53 per cent of the total, and the highest such share for six years, while banks’ share moved to the sidelines after rising in 2017.

The desire for scale does not always translate into performance. Cerulli Associates, the analytics firm, said in a recent report that billion-dollar RIAs go through “growing pains when they achieve the coveted threshold of $1 billion in assets under management”. Billion-dollar RIAs grew 9.8 per cent annually during the five years ended 2016. RIAs with $250 million to $500 million in AuM grew by 11.8 per cent, and firms with $500 million to $1 billion grew by 10.6 per cent. The seven RIAs with $10 billion or more at the beginning of the period grew by only 6.0 per cent, even underperforming the growth rate of small broker/dealers with $10 billion to $50 billion at 9.5 per cent.