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How A Fluctuating Economy Impacts Advisor M&A

Financial advisors are always hyper aware of fluctuating markets and how those markets impact their clients. This is especially true during sudden downturns, which can cause many clients to become fearful and seek out advice from their financial advisor about how to navigate the change. Fluctuating economies can also impact the advisor themselves, both personally and professionally. Often experts will see these changing markets and use them to make predictions about practice values and successions.

In the beginning of the pandemic, these experts called for a mass exodus of aging advisors from the industry. What many have been dubbing “the age wave” that the industry has been anxiously waiting for over the past decade. Although many advisors were influenced by the pandemic to finally sell their practice and retire, we did not see a significant surge in practice sales. Now, as markets continue to fluctuate and dip to new lows, industry experts are once again calling for a mass departure of retirement age advisors from the industry.

In reality, the same market fluctuations that can inspire one advisor to sell leads another advisor to hold on. This is just like how some investors will spook and sell assets during a downturn while others will hold or even invest more while stock values are low. This is because there are so many other factors that influence an advisor’s decision to sell, including life stage, personal circumstances, passion for the work, having a successor on hand, and health, among others. Also, just like investors, different advisors have different comfort levels with risk, which can change as they age or as their personal circumstances evolve.

So, despite projections over the last several years, there still has not been a predictable spike in advisor practice sales. Overall, what seems to be influencing advisor M&A the most is access to capital. More small and mid-sized firms as well as NextGen advisors have access to loans for both external acquisitions and internal equity purchases. We’ve also seen a wider variety of deals, ranging from client group sales to full practice sales, many of which may never be reported by the large M&A firms. Still, as uncertainty from the pandemic, supply chain issues, and other environmental factors continues to plague the economy, some advisors will use it as a reason to sell. Just as many will use it as a reason to hold on, waiting for more stable markets and the potential to “sell high” when values are strong.