In 2018, 68 percent expected the pace of mergers and acquisitions to continue rising, but this year it's fallen — why? (Photo: Shutterstock)

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

That's according to the latest iteration of the Advisory Authority study from Nationwide Advisory Solutions, formerly known as Jefferson National, which finds that RIAs and fee-based advisors expect the breakneck pace to slow over the next 12 months.

In 2018, 68 percent expected the pace of mergers and acquisitions to continue rising, but this year it's fallen nine percentage points to 59 percent.

According to the report, this is the lowest percentage to anticipate increasing M&A activity since the study began five years ago. That suggests that worries over the market and the economy could be lurking, threatening to erode valuations and decrease opportunities for transactions.

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

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

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

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

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

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

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

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