Consolidation among retail wealth management broker/dealers (B/Ds) continues to increase, with the share of B/D advisors who are affiliated with firms that make up the 25-largest B/D networks increasing steadily over the last decade. This consolidation is being driven, in part, by mergers and acquisitions (M&A) and the desire among B/Ds to increase scale in response to evolving industry dynamics, according to the latest Cerulli Edge—U.S. Advisor Edition.

B/Ds must invest significant amounts of capital to operate and maintain brokerage and advisory platforms and increasingly sophisticated advisor-facing technology tools, in addition to other areas of their businesses, while facing increasing competitive threats. “Greater scale enables firms to increase these relatively fixed investments and returns on those investments can increase significantly when they support a larger number of advisors and assets under management (AUM),” says Michael Rose, associate director. “Additionally, investments made in these areas can significantly increase the appeal of a B/D firm to prospective advisors, better positioning firms to increase marketshare.”

For example, in one of Cerulli’s most recent surveys, technology was tied for the top spot among the factors most frequently cited by advisors as influencing their decision to join a B/D. Advisors have also indicated that they plan to expand their use of advisor technology across the board, including client portals, e-signature, customer relationship management, and financial planning software, among others. The perceived importance of technology among advisors is likely to increase as a result of the COVID-19 pandemic, which has impressed upon advisors the benefits that technology can provide to their business by enabling them to communicate more effectively with clients, expand geographical reach, and operate more efficiently, among other benefits.

Cerulli contends that successful M&A in the wealth management industry extends beyond announcing and closing on an acquisition or merger. The success of a given transaction is heavily influenced by the extent to which the acquiring B/D can retain the advisorforces that are acquired as part of a transaction. “This gives a competitive edge to larger B/D firms with greater scale, and more robust technology and platforms, which are vital to advisor satisfaction and retention during their migration to the acquiring firm,” adds Rose.

Other factors including advisor support, firm culture, and restrictions on how advisors operate their businesses are also critical to advisor satisfaction and are not directly correlated with the size of a given firm. Therefore, M&A opportunities are not limited only to very large B/Ds. “Those large B/Ds that do embark on M&A will be wise to thoroughly consider all of these factors objectively, from the perspective of advisors, as part of their due diligence efforts,” concludes Rose.