Today's Viewpoint: A MarshBerry Publication

2021 is turning into a banner year for merger and acquisition (M&A) deal activity for insurance brokers, including deals between insurance brokers and Registered Investment Advisors (RIAs). While the potential federal capital gains tax rate changes are partly driving the increase in deals, MarshBerry sees strong M&A activity continuing in 2022 as insurance brokers pursue opportunities in the RIA space for a host of reasons.

Insurance brokers are expanding into wealth advisory because retirement and wealth management are natural extensions of their existing business lines. Both serve in a fiduciary capacity, help clients manage risk, and tend to do business on a geographic basis. Additionally, they are generally dependent upon professional associations, client referrals and local marketing to drive organic growth. Insurance brokers may find that partnering with the right RIA firm allows them to leverage these synergies to build a more fundamentally sound business with improved growth, retention, and an increased share of wallet by providing a comprehensive set of services across the entire client experience.

As consolidation increases in both the insurance brokerage and wealth management markets, it’s important for a firm to offer a full suite of services to stay competitive. For a broker looking to break into the RIA business, a partnership or acquisition could be more efficient than building internally as it provides the firm with immediate scale along with the opportunity to position itself alongside a proven brand and advisory team.

Here are three additional factors driving the continued rise in deals and partnerships between insurance brokerage firms and RIAs.

  1. There are synergies between insurance brokerage firms and RIAs, and opportunities for cross-selling. Insurance brokers have opportunities to cross-sell wealth management services to their existing clients. As many already provide risk, insurance, and employee benefits, insurance brokers’ offering additional retirement planning and financial planning would be a natural extension. As clients engage in more services with a provider, there’s a likely increase in retention. Clients are also increasingly interested in financial advice and planning. A recent market survey by Cerulli Associates found more than 40% of investors said they need more financial advice than ever with 56% being willing to pay for the advice. Brokerage firms that offer a full suite of services, including retirement planning and wealth advisory, could be poised to gain future market share. Additionally, RIAs are poised to see growth as high net worth and ultra-high net worth wealth in North America is projected to increase by $13.5 trillion by 2025.
  2. Acquisitions of RIAs and financial advisors tend to be more cost efficient vs. purchases of insurance brokers. With 2021 turning into the most significant year in M&A deal activity, insurance brokers are selling for higher valuations amidst increased competition. The ongoing consolidation in the retail broker space and increased interest from many investors over the last few years have also pushed up valuations of insurance brokers. While similar demand exists for RIAs, valuations for smaller wealth-related entities have not yet hit the same levels that are being seen for insurance brokers. There is an opportunity for arbitrage if the right deal can be struck to enter into or grow across this space. 
  3. Breaking into the RIA sector offers growth opportunities and protection of existing revenue for insurance brokers. Given the fragmented nature of the RIA space, with over 15,000 RIAs in the market, insurance brokers have an opportunity to participate in consolidation in this ancillary sector. Insurance brokers will benefit from offering a full suite of services to their clients. If your clients are going to a competitor for retirement or wealth planning, that could potentially put revenue at risk if the client decides to move more business to the competitor. When an insurance broker offers a full range of services, it reduces the potential of a client switching providers. Additionally, revenue is likely stickier if a client engages with multiple products and services.

So, what does all this mean for independently owned insurance agents and brokers? In short, insurance brokerages and wealth management firms could benefit from a potential partnership. There are many synergies that exist between the businesses, and brokers may find the right deal to be an effective solution to increase growth in the current competitive environment.

If you have questions about Today’s ViewPoint, or would like to learn more about how MarshBerry can help expand your wealth management portfolio, please email or call John Orsini at 440.220.4116.

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