Case Study: When RIA Firms Merge, Time is Critical 

In our previous blog, “From Breakaway to Boomerang,” we examined trends in the wealth management space, focusing on advisor movement and its role in driving merger and acquisition (M&A) activity. According to a Fidelity study, investment advisor M&A activity has surged nearly 237% from 2019 to 2023 ¹. This trend shows no signs of slowing down. Cerulli reports that the number of independent RIA firms has grown at a compounded annual growth rate of 2.4% over the past decade, projecting that nearly one-third of asset market shares will be controlled by the independent and hybrid channel by 2027 ². As the pace of acquisitions continues to rise, it is imperative that the integration process is executed with precision and expediency to minimize disruption to end investors.

52% of Planned Deals Fall Apart: Precision in Execution is Critical

There are many strategic reasons for an RIA aggregator to consider a potential acquisition: acquiring top talent, entering new geographic markets, or increasing revenue through inorganic growth. Whatever the reason, it is in the best interest of both parties to integrate the firms quickly to reduce friction for the end investor and to monetize the cost of the purchase. However, there are barriers to this process that must be overcome, including LPOA letters to be signed, custodial integrations to connect, and investment strategies that need to be aligned. When factoring in the impact of realizing gains on moving taxable accounts, the entire process can take considerable time and human capital. At 55ip, our Transition Services team is specifically designed to help manage these challenges.

Case Study: How 55ip’s Multi-Account Assignment Tool Accelerated the Acquisition Process

Situation: Integrate a new firm into another while keeping impact to clients uninterrupted and tax-neutral

55ip has a strategic partnership with a large industry aggregator. When this firm acquired another RIA with $2 billion in AUM, the goal was to seamlessly integrate the new firm onto their platform while keeping the impact to clients uninterrupted and tax-neutral. Initially, the expectation was to transition clients into the aggregator firm’s model strategies slowly over time. However, 55ip’s Transition Services team provided an approach that accomplished these goals in a considerably shorter timeframe. See Figure 1 for a typical plan of action for integration. 

Action: Streamlined integration with 55ip’s Multi-Account Assignment tool

To get started, the RIA aggregator’s team secured the necessary client signatures while 55ip managed the transition process. Leveraging our proprietary Multi-Account Assignment Tool^SM, we ingested the new firm’s full 2,427 accounts, which consisted of 245 securities and 19,959 tax lots. The effective operational work performed by the advisor prepared each of those tax lots for review by 55ip ahead of the trade execution day.

Before trade execution, 55ip reviewed all 19,959 tax lots across the 2,427 accounts. To transition the client’s portfolio from the legacy strategy to the new model strategy, 55ip matched unrealized gains and losses to transition the client’s portfolio to the target model, effectively executing the trades while maintaining minimized tracking error towards the client’s portfolios.

Results: Quality isn’t sacrificed in the name of scale and efficiency 

White-glove service and scale were the primary factors both 55ip and the aggregator considered when transitioning the $2B+ portfolio into the aggregator’s models. The entire trade occurred over the course of one day, taking five hours with a 95.5% transaction completion rate.

55ip’s partnership with both the aggregator and the new firm created a significant impact through our automated trade generation and trade execution engine. This resulted in transformational improvements in operations, time savings, efficiency, and cost reduction. Our goal is to support financial advisors in shifting their focus from routine tasks to providing more personalized and attentive service. Beyond 55ip’s support, the technology we deliver not only saves time but also adds productive hours back to the staff’s day, contributing to a healthier bottom line.

Figure 1: Check list of typical operational tasks when integrating accounts 

Portfolio Analysis	Review the current allocation’s custodial tax gains/loss
Model Strategy Selection	Review the aggregator’s target model holdings
Primary Security Selection	Ensure the appropriate allocation/risk strategy
Proxy Security Selection	For tax loss harvesting, build a list of non-substantially identical securities to trade into
Equivalency Position Logic	Ensure that positions in a client’s existing portfolio that are identical holdings to their new holdings are not sold
Trading Plan Development	Plan ahead for integration day
Pre-Trade Compliance Checks	Review and ensure proper plan for accounts on a clients restriction or customization list
Pre-Trade Account Maintenance Checks	Ensure cash is available for periodic distributions, withdrawals, upcoming contributions are considered
Trade Preparations	Preparing the necessary trades on prior day close
Trade Execution	Execute the trades based on the plan and checks built into the process
Post-Trade Reconciliation	Reconciliation amongst the trade execution and planned trades

Footnotes

All transactional data source: 55ip

1. Fidelity Investments 2023 M&A Valuation & Deal Structure Survey – June 2023 
2. Cerulli Edge US Advisor Edition -October 2023 

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