M&As: A Successful Trust Business Can Sweeten the Deal

Banks are eager to acquire registered investment advisors again, firms offering trust services are more attractive.

Pershing’s New Report “Real Deals 2009” suggests 2010 will be a good year.

This week the news services were filled with stories about mergers and acquisitions once again. One reason was the December 9 release of the Pershing Advisor Solutions (PAS) and FA Insight study – “Real Deals 2009: Definitive Information on Mergers and Acquisitions for Advisors.” It’s now available for download at www.pershing.com.

This morning, The Trust Advisor interviewed Mark Tibergien, Pershing Advisor Solution’s CEO, at his office. We wanted to know what M&A activity has meant to the advisor community this year. In addition to discussing the current state of M&A 101, we explored what edge an advisory firm might have for acquisition with a solid trust business under its belt.

Tibergien said that having a trust operation as part of an advisory business “does potentially help.” He added that a trust operation gives the advisor “access to the will vault.” This translates into two distinct benefits for the RIA practice. First, accounts are likely to remain loyal because once trust relationships are created with a family they usually hold firm.

Second, advisors with a trust operation possess a blueprint on the direction of future generations. Knowing that future in advance via the trust instrument will give the advisor a clear picture of what’s to come after the client passes away.

Advisors without trust services who manage family money have an 8 out of 10 chance of being fired by heirs after their client dies. The Trust Advisor Blog reported on this phenomenon last September in: Does a Client Have a Life After Death?

Our article presented compelling evidence that providing trust services along with investment advice greatly reduces the likelihood of an advisor being fired by the new generation.

Fiduciary expert Stephen C. Winks said this week that the advantage of trust powers for an RIA are extraordinary. But he cautioned that it wouldn’t make sense for an RIA to buy a trust company. “It would be cheaper,” he felt, “to create their own trust company.”

Middle Market Merger Mania

Pershing Advisor Solution’s Tibergien reported in his third annual study on M&A activity that, while the volume of transactions in the RIA sector is down this year, a new trend of mergers among RIA firms and a decline in financial buyers has emerged. The study showed that In the first nine months of this year, 31 transactions were recorded–a pace similar to the 44 in 2008. But this is still well off the 67 that took place in 2007.

Transactions between RIA firms became the most common form of deal in 2009

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