RIAs have seen a massive surge in M&A activity and accelerated advisor integrations since the COVID-19 pandemic began in March 2020. Indeed, according to
The pandemic has caused devastating loss of life and economic hardship . Yet, both macro and micro impacts on the financial advisor industry, which were brought on by COVID-19 pandemic conditions, have prompted more financial advisory firm transactions. The result has been a boom in practice growth, increased support and resources for advisors and clients and augmented technology. This, in turn, has produced a wide range of benefits for clients and advisors.
The widespread adoption of remote work presented three major disruptions to the industry: adjustments to technology, restructuring client communications and the more immediate need for succession planning. These changes positively impacted firms that were acquired in 2020 and 2021. As we reflect on the underlying motivations that are currently prompting deal decisions, we anticipate what’s to come in the next year.
Technology enables effective service integration
First and foremost, remote work continues to make it easier for many independent RIAs to visualize future collaboration with partner firms. Having the operational capability and additional support to continue working and managing staff remotely during the pandemic was — and continues to be — a valuable benefit to many independent firms. Making the decision to integrate eliminates much stress on the part of the owner, since it can be overwhelming to run all aspects of a business at any time, let alone while being isolated from staff.
One of the most potent trends for RIAs in the past couple of years has been the shift in technology usage in all aspects of our work with clients. Technology is the great equalizer. The pandemic nudged everyone to adopt digital processes, so advisors and clients alike grew more comfortable with technology as a tool. Despite many clients’ reluctance before the pandemic, practices like docu-signing have become commonplace.
Many of Allworth’s newest partners sought to combine with firms that had been taking steps to implement technology infrastructure over time. In addition to allowing our advisors to work safely and remotely during the pandemic, technology provides platforms for optimal client support, allowing us to engage with our clients anytime or anywhere.
Restructuring client communication and collaboration
Another continuing factor that’s leveling the playing field in a competitive sector is the diminished emphasis on geography when choosing a financial advisor.
In addition to teaching advisors how to accommodate clients in a digital setting, technology has improved retention. Zoom and other remote communication tools have made it easier for clients to find financial advisors who meet their needs, regardless of geography. When moving to a new location, people no longer feel the same pressure to connect with local financial advisors. We’ve seen many clients relocate as a result of the pandemic.
Fortunately, the vast majority have chosen to stay with their current advisors instead of making a switch, in large part because technology enables the continuation of existing relationships. While this means that competition has increased beyond the local limits, there are ways to rise to the challenge. Breadth of services paired with expert client service are paramount to success as an RIA.
Scale is also important, as new business opportunities arise depending on how much growth you can drive. With more time to spend with clients, advisors will have the opportunity to optimize these assets and build deep, long-lasting relationships.
Succession planning that provides security for practices and clients
Many RIA firm owners have been participating in candid discussions about succession planning that may not have taken place prior to the pandemic. The reality is that for most single-shingle advisory firm owners, an unexpected health crisis would be devastating. Firm leaders began seriously considering what it would mean to their firm, employees and clients if an unexpected illness, like COVID-19, hit. To ensure future continuity of high-quality service and client security, advisors began to develop succession plans with a newfound sense of urgency.
There is a strong demand for diversified talent in financial planning. From our perspective, partnering with an RIA firm can attract new advisors, while opening professional opportunities for those already on board, thus increasing employee retention and recruitment.
As we enter 2022, all signs point to this momentum continuing. Will every financial advisor continue to operate remotely? Likely not. Perhaps every third meeting will be in person, or maybe RIAs will connect with their clients through events. Selling will also continue to accelerate, as 40% of advisors say that they’re going to retire within the next 10 years. The smooth transitions made possible by integration and technology will only help them to do so gracefully.
