man riding a snail wearing a flag of the U.S. In 2018, 68 percent expected the pace ofmergers and acquisitions to continue rising, but this year it'sfallen — why? (Photo: Shutterstock)

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The pace of mergers and acquisitions might finally beslowing, according to RIAs and fee-based advisors, despite the factthat in 2018 RIA M&As hit a new record for the fifth consecutive year.

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That's according to the latest iteration of the AdvisoryAuthority study from Nationwide Advisory Solutions,formerly known as Jefferson National, which finds that RIAs andfee-based advisors expect the breakneck pace to slow over the next12 months.

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In 2018, 68 percent expected the pace of mergers andacquisitions to continue rising, but this year it's fallen ninepercentage points to 59 percent.

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According to the report, this is the lowest percentage toanticipate increasing M&A activity sincethe study began five years ago. That suggests that worries over themarket and the economy could be lurking, threatening to erodevaluations and decrease opportunities for transactions.

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Respondents are actually anticipating increased marketvolatility, with 56 percent saying it will occur over the next 12months; in addition, 56 percent are worried about the potential foran actual bear market in the next year and 54 percent anticipatethe potential for an economic recession in the U.S. over the sameperiod.

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“Since launching our Advisor Authority study in 2015, a growingnumber of RIAs and fee-based advisors were saying that M&Aactivity would increase—so this year's sharp reversal in the trendcould be an indicator of greater uncertainty about the market andthe economy,” Craig Hawley, head of Nationwide Advisory Solutions,said in a statement.

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Hawley continued, “But at the same time that RIAs and fee-basedadvisors are less bullish about the pace of consolidation andM&A activity, the majority still say that these deals will havea positive impact on their business. Consolidation among firms isdriven by a variety of factors—including increasing competition,rising fee compression, the need for greater scale, as well assuccession planning for a generation of older advisors.”

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Among advisors and RIAs who anticipate positive effects fromM&A on their business, the top two reasons include greaterresources to serve their clients (31 percent in 2019, 38 percent in2018, 42 percent in 2017, 36 percent in 2016) and greater resourcesto expand and scale their businesses (31 percent in 2019, 35percent in 2018, 32 percent in 2017, 34 percent in 2016).

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In addition, the positive sentiment over M&As could be areflection of RIAs' and advisors' own exit from the business asboomers overall turn 65 and hit the retirement trail.

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The industry's looming “Silver Exit” could be driving thepositive responses around M&As allowing them to create asuccession plan (28 percent in 2019, 26 percent in 2018, 25 percentin 2017, 24 percent in 2016) as well as increased opportunities tosell their business (27 percent in 2019, 25 percent in 2018, 20percent in 2017, 21 percent in 2016).

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They are also “slightly less likely to say it increasesopportunities to buy another practice (26 percent in 2019, 25percent in 2018, 29 percent in 2017, 32 percent in 2016).”

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READ MORE:

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.