6 ways independent wealth management firms are consolidating

The independent channels of wealth management are changing so quickly that it can be easy to lose sight of the underlying factors beneath each headline-grabbing deal.

Firms like LPL Financial, Focus Financial Partners, Osaic, Creative Planning, Envestnet and an increasing array of investors among private equity funds and other entrants to wealth management are playing an important role in the six consolidation trends outlined in the slideshow below. The division between large and small firms explains why those investors frequently refer to wealth management as a highly fragmented industry.

In one sense, recruiting moves and M&A deals have created "haves and have-nots" and an environment in which it's "so difficult for small and midsize firms to compete with the larger firms," said Jodie Papike, CEO of independent advisor and executive recruiting firm Cross-Search. In another, there are "still several hidden gems in the marketplace" that are thriving in their own niches alongside the giants. 

And more financial advisors are starting to question how the endless growth aligns with the fiduciary duty and the notion of independence. (Is boosting assets under management by 26,000% enough expansion for you? How about a headcount surge of 1,200%?) Some of the leading consolidators among independent brokerages and RIAs have seen teams leave their ranks or decline their recruiting pitches. An industry that is still predominantly composed of small businesses may never fit into a neat group of buckets dominated by a few behemoths. 

On the other hand, many clients would likely rather, for example, work with one firm on their taxes and investments instead of booking two sets of appointments. That scale can also lead to cheaper prices for clients and yield better resources for advisors to use in helping their clients. 

It's no wonder that many wealth management firms are embracing the private equity and sovereign wealth funds — and their generous valuations upwards of several billions of dollars in some cases.

"Those types of valuations only better individual advisors' situations because it means the value of their practice is just going higher and higher," Papike said. "Private equity money coming into the space has created a lot of change — some of it not welcome change for some advisors."

The attraction of rolling up registered investment advisory firms or other smaller independent competitors is coming with less choice for advisors, she pointed out. For the past 15 years, Papike's firm has sent surveys to the top firms in the independent channels of the industry. At one time, the list had been as large as 200 firms. Now it's down to about 60.

"The amount of firms that are now out of that book because they've been purchased or consolidated is unbelievable," she said. "Even if a firm is fine with their current headcount, if they don't grow, they're having advisors retire or unfortunately pass away, so their headcount is shrinking dramatically."

Scroll down the slideshow for an overview of the main drivers of consolidation across the independent channels of wealth management. And follow these links to see the lists from last year and in 2022.