The outlook for 2023 from registered investment advisors (RIAs) is that the best days are behind us as valuations and M&A activity are expected to decline, according to the results of the DeVoe & Company fifth annual RIA M&A Outlook Survey. 

RIA firms involved in M&A activity have been impressive since the San Francisco-based consulting and M&A guidance firm started its survey five years ago, including another record year in 2022 with more than 200 transactions through the first three quarters. 

Yet only 42% of advisors expect RIA M&A activity to increase over the next year, with 35% saying “somewhat” and 7% saying “considerably.” The results indicated a 21% decline in expectations from a year ago when 63% indicated activity would increase. 

The report also noted that deal flow has been “decelerating” in the fourth quarter of 2022 given higher interest rates, a slowdown in economic growth, recession fears and global market volatility. These concerns have already caused a sharp downturn in financial markets this year, reducing advisors’ assets under management as well as their revenues and profits. These conditions have forced advisors to lower their expectations for company valuations. 

According to DeVoe advisors are focusing more on smaller transactions than in the past. The number of large sellers with more than $1bn in assets has declined, and RIAs with assets less than $50mn are the biggest sellers. 

Respondents were also pessimistic about the valuation of RIAs that are up for sale, with more than half expecting lower valuations over the next year, compared to just 8% in 2021. Meanwhile, only 8% of advisors expect higher valuations over the next year, compared to 39% a year ago. 

“Although DeVoe & Company expects that RIA M&A will continue to increase over the next five years, our crystal ball for the deal volume over the next few months is a bit cloudy. It will likely be bumpy in the near term, as the long term trends upward,” the firm said.