When Investment Advisors Merge

by charles | Comments are closed


No business can outperform its business model — Sam Kariuki, Kenya

It’s never been easier to start a wealth management advisory business and never been harder to grow it. Very few investment advisors achieve national size and status without a product or technology edge.

Of the approximately three thousand RIAs and OCIOs in the US, only about eighty have managed to accumulate over five billion in AUM.

According to the Investment Adviser Industry’s snapshot 2022, “most investment advisers (88.1%) are small businesses with 50 or fewer employees and one or two offices.”

These small advisors, from $100 million to $5 billion AUM, grew at a compound rate of about 6% over the four-year period from 2017 to 2021. The largest advisors on the other hand, those over $100 billion AUM, grew more than twice as fast, 14.9% over the same four years.”

Concentration creates another roadblock. As we noted in our last Outsourced Chief Investment Officer (OCIO) report, just eight providers out of the one hundred seven we listed – Aon, Blackrock, Goldman Sachs, Mercer, Russell, SEI, State Street, and Willis Towers Watson – manage well over half the OCIO assets, $2.073 trillion of the $3.74 trillion AUM.

So how do you build “the next great investment institution” as Jon Hirtle, executive chairman of Hirtle Callaghan describes the challenge? Why are there so few breakthrough OCIOs?

Barring a rare exception, there are only three ways most wealth and institutional money managers grow — buy, sell, or merge.

Those that finally opt for better-resourced allies are in good company. Echelon Partners 2022 RIA M&A Deal Report tracked 340 announced transactions in 2022 alone, the tenth straight year of record acquisitions.

The problem is, most mergers and acquisitions crash and burn. Roger L. Martin, former dean of the Rotman School of Management at University of Toronto, noted in a Harvard Business School article that 70% to 90% of all acquisitions are “abysmal failures.”

Why? “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.”

Professor Martin offers four suggestions to improve M&A outcomes.

  • Be a smarter provider of growth capital.
  • Provide better managerial oversight.
  • Transfer valuable skills to the acquisition.
  • Share valuable capabilities with the acquisition.

But if the dream is to build an enduring investment powerhouse, you had better pick the right partners.

Mr. Hirtle cautioned in a recent Financial Advisor interview that “a lot of acquirers are ‘financial consolidators’ who will be ready to sell again in three to five years after making an acquisition. Clients and staff do not want to deal with that kind of disruption a second time, so it is important to join with a stable firm who values you as a long term partner.”

What do you guys really want?

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Mellon’s John Hull Tops Non-Profit CIO Pay Rankings

Institutional Investor – March 15, 2012  •  Frances Denmark

Charles Skorina had a problem. As an executive search consultant specializing in filling investment officer holes at pension funds and endowments, he was often asked by boards of trustees to produce metrics to aid in candidate comparisons. But in his 30 years in the search business, such data had proved hard to come by ­— that is, until late January. That’s when Skorina’s “CIO Performance-for-Pay” ranking (see chart below) hit the institutional investor zeitgeist.

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Bloomberg: Help Wanted on Campus

By Gillian Wee  Aug 18, 2010

Bloomberg Markets Magazine


Top U.S. universities are looking for a new breed of investment manager who can be nimble in tough times.

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