“RIA deal-making will invariably continue and grow in frequency,” said Gabriel Garcia, director of relationship management at Pershing Advisor Solutions. “Firm owners are increasingly aware of the potential benefits of a transaction and are more confident in initiating one.”

Indeed, a transaction can bring a number of strategic advantages, including: greater economies of scale, access to new markets; new expertise; and an ownership or management succession solution. However, in the report, Garcia urges firms to consider both organic and inorganic approaches for growth.

“While M&A activity is highly regarded as a means of expansion, it is important to recognize that a transaction is not necessarily the only way to achieve growth,” he said in Real Deals: Achieving Purposeful Growth with Purposeful Transactions. “RIAs must first understand the strategic context of a potential transaction.”

Pershing said that while many firms are “keenly interested” in the potential of a transaction with another RIA, their motivations for pursuing a deal often lack “clear definition.”

Family Wealth Report recently looked at the launch of RIA Match Concierge Consulting, which combines technology with M&A consulting services for RIAs. The service was launched off the back of advisor demand for an end-to-end solution that would oversee the entire relationship-matching process and ties in with what its founders described as the “robofication” of industry M&A .

Data

M&A in the RIA space is heating up According Pershing's report, one in four advisory firms has been involved in a transaction in the past five years, during which time nearly half of all deals involved RIAs transacting with each other. Although the 42 “real deal” transactions in 2014 is slightly less than the 48 recorded in 2013, the numbers represent a largely consistent level of M&A activity over recent years.

Pershing defines “real deal” transactions as those involving an RIA or acquisition of an RIA which is retail-focused and manages at least $50 million or more in assets, or earns $500,000 or more in annual revenues.

The firm's data is in line with recent insight from Schwab – that the pace of M&A deal making in the RIA sector last year was largely in line with 2013, continuing a trend that underscores the industry's growth and maturation.

Interestingly, Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, said he is seeing firms being more strategic about their growth, and while many remain focused on M&A as part of that strategy, they are also being selective about opportunities and considering additional factors such as cultural and philosophical fit, he said.