The same pressures for growth and non-interest income have them shopping, albeit more cautiously

December 14, 2009 — 5:59 AM UTC by Brooke Southall

1 Comment

Paul Lally’s experiences as a mergers and acquisitions consultant for RIAs say a lot about the disappearing act banks pulled last year.

In the first quarter, the president and co-founder of Gladstone Associates LLC had an RIA for sale and three Midwest banks vying for its purchase. Then came a day in late March, back when it seemed the stock market would never rebound. Within one day, all three banks — none with the knowledge of the other’s action — withdrew their offers.

Fast-forward to the end of the year. Lally’s firm is still working on bank/RIA deals, but a lot more slowly. He’s been shepherding one deal with one bank for six months, a longer gestation time than was customary before 2008. Advisors should expect six months to nine months to complete a deal with a bank in this market, he says.

Banks are no longer giving discretion to a particular employee to make deals. Purchases need to be signed off by multiple layers of management and committees.

Unheard-of development

In the bank deal Lally currently finds himself ensconced, he is dealing directly with the bank’s chief financial officer – a relatively unheard-of development in years past.

But just because banks are approaching deals more cautiously doesn’t mean that their importance as buyers is necessarily diminished, says Dan Inveen, the principal for FA insight who authored the 2009 Real Deals study, an annual look at the M&A market for wealth managers formerly compiled by Moss Adams.

“Don’t overlook banks as buyers if you’re an RIA looking to do a deal,” he says.

Banks still face the same pressures to grow and find sources of non-interest income that had them actively acquiring RIAs before the stock market — and particularly bank stocks — crashed last year, several experts say.

It’s easy to look at the stats on bank acquisitions of RIAs and conclude that these leviathans of the financial world abandoned the market. Banks accounted for just 20% of all deals for wealth management firms in 2008, down from the peak of 72% in 2002, according to the Real Deals study by FA Insight and other experts.

Dan Seivert: Sometimes irrational pricing is good for the auction process.
Dan Seivert: Sometimes irrational pricing is
good for the auction process.

Some of the banks recently active in acquiring wealth managers include: Harris Private Bank, First Western Financial, Bryn Mawr Bank Corp. and Northern Trust, according to Real Deals.

In total, 18 deals were initiated by banks or trust companies between Jan. 2008 and Sept. 2009, according to the study.

Beneath the radar

There are other deals being done by banks that occur beneath the radar, according to Lally, who is based in Conshohocken, Pa.

Mark Tibergien, CEO of Pershing Advisor Solutions, which sponsored Real Deals, also believes that bankers may be shifting into an RIA-buying gear.

“At Pershing, we serve banks,” he says. “We’ve been engaged with a number of banks about how they can expand their fiduciary or RIA offering through acquisition or de novo [means]. They likely will be in the business again.”

There’s a good reason that banks are acting with a sense of urgency in tossing their hats back in the M&A ring, Lally says.

“They see this possibly as the opportunity of a lifetime to get into the wealth management business,” he adds.

Banks could provide a needed spark for the rest of the still-cold M&A market for wealth managers, says Daniel Seivert, CEO of Echelon Partners, a Manhattan Beach, Calif.-based M&A firm.

Poster children

“Banks were the poster children for overpaying,” he says. Having banks back “puts more people in the auctions,” Seivert adds. “Sometimes irrational pricing is good for the auction process.”

Many banks are restrained by having less cash and equity shares of lesser value than before 2008, he adds.

Mark Tibergien: Nothing is forever. Advisors say they wouldn’t sell to such-and-such organization, but they do.
Mark Tibergien: Nothing is forever. Advisors
say they wouldn’t sell to such-and-such
organization, but they do.

Indeed, all the experts agree that banks, like their roll-up counterparts, are chastened buyers that are thinking strategically this time around as they approach acquisitions.

Regardless of bank intentions, Seivert questions whether RIAs will consider banks a favored partner in a strategic alliance.

“Why would I want to come under your culture and your decision-making?” he asks on behalf of hypothetical advisors.

Lally says that many advisors – particularly ones accustomed to selling commission-based product – still like the idea of folding into a bank. Having had their assets reduced in this market downturn, they believe banks are best positioned to funnel them referrals to rebuild assets under management.

Sellers are fickle

Besides, sellers are fickle when it comes to accepting lucrative offers for their practices, according to Tibergien.

“Nothing is forever,” he says. “Advisors say they wouldn’t sell to such-and-such organization, but they do.”

Share your thoughts and opinions with the author or other readers.


Stephen Winks said:

December 14, 2009 — 8:56 PM UTC

The advantage of trust powers are extraordinary. But, wouldn’t it make more sense for large RIAs to buy a Private Trust Company, that way the interests of the advisor are not lost, importantly, it is cheaper to create a private trust company than to buy one.


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