Whenever we talk about registered investment advisor deal activity, it is worth asking what each report actually counts, as different methodologies can produce different totals. Regardless of methodology, one trend is difficult to miss in Fidelity’s latest M&A report: deal size is moving up. We’re seeing that at Carson, too.
People point to private equity, borrowing costs and advisor demographics and all of those factors matter. But there’s a broader shift happening in the industry. The average advisory business today is simply larger, more sophisticated and more valuable than it was a decade ago.
Years ago, firms often measured success by the number of million-dollar producers they had. I know I did. Today, many advisory businesses operate as true enterprises, with professional management teams, specialized staff, multiple service lines and clear succession plans. As those firms grow, the transactions involving them naturally grow as well.
In other words, bigger deals aren’t just a function of more capital chasing acquisitions. They’re also a reflection of how much the advisory industry itself has evolved. The firms coming to market today are often larger, more durable businesses than the ones that were changing hands 10 years ago.
From Succession to Competitive Growth
That reality is changing transaction rationale. Succession, scale and technology still matter, but increasingly we meet owners who are not preparing to retire. They are competing against larger, better-equipped firms and asking whether the right partner could help them win more clients and grow faster.
These are often nimble, ambitious businesses with many productive years ahead. Their mindset is not, ‘I am ready to exit.’ Instead, it’s ‘I have built something strong. How much further could we take it with the right firm behind us?’
That can be a true win-win. Larger firms want to grow through high-quality acquisitions, while smaller firms seek resources to accelerate their plans without erasing what made them successful. Getting that outcome, however, requires discipline on both sides of the table.
For Sellers: Get Ready Before You Are Ready
If you’re targeting a sale, start by defining the outcome you want. Many of the owners we meet have years left in the business, which gives them an advantage: time to prepare thoughtfully rather than react to a deadline.
I often tell owners that they may never be more valuable than they are seven years before they plan to exit. The exact timeline will vary, but the principle is simple because, at the end of the day, preparation takes longer than most people expect.
You may need to separate personal expenses from the business, normalize compensation, strengthen financial reporting and decide who should be on the cap table. Engaging a sell-side advisor or investment bank also takes significant time. The work should begin well before you are ready to transact.
Next, address talent early. If next-generation leaders will be important to the transaction and the firm’s future, determine how they will participate in ownership before going to market. Depending on the circumstances and with appropriate tax and legal guidance, that could include a purchase, a grant or another equity arrangement. Buyers want to see that key people are invested in what comes next.
Finally, define your story. Be clear about what you have built, where you want to go and what you need from a partner. Write down your non-negotiables and communicate them early. A strong story and clear points of alignment help you narrow the field, so you’re not spending time with dozens of firms that aren’t a fit.
For Buyers: Look Beyond the Balance Sheet
Buyers need the same discipline. It is easy to focus on asset totals or feel good about growth that came through acquisitions. But buying more does not automatically mean building a better business.
My main advice is to look beyond the dollar amount. Are these people representative of your values and culture? Would you feel proud to have them carry your firm’s name? Put more simply: Would you recommend this advisor to your parents? If the answer gives you pause, you should not invest in the business.
We also look for an entrepreneurial mindset, especially among owners who want to continue feeling like entrepreneurs after the transaction. If you buy a high-growth, well-run business and immediately force it to operate differently, you risk damaging the qualities that made it attractive in the first place. Our best outcomes come when a firm wants the benefits of scale, retains appropriate autonomy and sees its culture as additive.
The Real Currency Is Not AUM
If readers take one idea from this piece, let it be this: AUM does not equal enterprise value. Two firms can each manage $1 billion and still have dramatically different values once you look under the hood.
There’s a multitude of questions you can ask. How strong is the management team? What does the expense base look like? Is the firm growing organically? Does it have next-generation talent with a meaningful stake in the outcome? Are clients paying appropriate market rates? Those are the factors that shape value. AUM is one data point, not the answer.
I remain bullish on strategic RIA M&A because the forces behind consolidation have not gone away. But bigger deals alone are not the goal. The opportunity is to pair strong firms with the right partners and build businesses that can keep growing for clients, employees and owners over the long term.
