Is there an M&A strategy gap in the global advice industry?

Global study finds nearly half of firms considering M&A, but over 80% lack a defined strategy

Is there an M&A strategy gap in the global advice industry?

A merger or acquisition may be the short-term goal shared by many financial advisors globally, but a study from Dimensional Fund Advisors indicates that a large majority do not have a mapped-out plan to pursue it.

In its 2020 Global Advisor Study, which marks the 10th anniversary of the research, the firm consolidated 2020 data from almost 1,000 independent advisory firms globally with a combined AUM of US$368 billion.

While nearly half of the surveyed firms said they’d like to enter into a merger or acquisition over the next 24 months – most said they’re interested in acquiring a firm (31%) or a team (21%) – over 80% lacked a defined M&A strategy.

That could be impeding firms’ ability to get deals done as 62% of respondents said they’ve been contacted by firms interested in an M&A transaction, but just 3% of that subset pushed through with a deal.

Of the transactions reported, 60% occurred among firms with less than US$50 million managed, reflecting an ongoing emphasis on continued growth and succession through partnerships with larger, more mature firms.

Among the most common motivations for interest in M&A activity were raising the value of their businesses, creating improved economies of scale, improving cash flows/profits, and acquiring human capital. With respect to reasons why sales or acquisitions fall through, lack of alignment in investment philosophies (83%) and firm culture fit (82%) came up as the most common deal-breakers.

The outcome for deals that push through, however, appears to be consistently positive. Across all survey participants, client retention rates for transactions completed in the last three years stood at 93%. Focusing on the fastest-growing firms surveyed, acquisition accounted for 20% of new client households and 30% of AUM growth.

Dimensional also devoted part of the survey to succession planning, which 44% of all responding firms said they have a formal strategy for. Among those firms, 46% are looking to execute their plans within the next decade; sole practitioners seem to have an even shorter runway, with 43% planning to exit within five years.

Focusing on the challenges to implementing a succession plan, the top response was identifying a successor (49%), followed by agreeing on a timeframe to put the plan into action (28%).


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