PE-backed Mercer snatches up wealth managers, as recession fears drive demand

'It's awfully hard for those small firms to compete and so they need to join large firms to survive," said Mercer vice-chairman David Barton.

Mercer Global Advisors, a Denver-based wealth management firm backed by PE firms Oak Hill Capital and Genstar Capital, has been on a whirlwind of acquisitions this year, closing 13 deals that represents $5.2 billion in acquired assets under management, as fears of a recession drive customers to their doorsteps.

Last week alone, Mercer announced two deals, Goldstein Munger & Associates, the San Ramon, California-based wealth management firm with approximately $1 billion in assets under management and The Asset Advisory Group, the Cincinnati-based wealth management firm with about $370 million in AUM.

The firm is expecting more deals this year, vice-chairman and M&A deal team leader David Barton told PE Hub. And part of what’s driving the momentum is that the industry is highly fragmented and that there’s high demand for talent and fears of a recession, among other factors.

Each acquisition brings new opportunities that will benefit from Mercer’s wealth of resources and experience, Barton said.

“The market is super competitive and I refer to it as the Walmart effect,” said Barton, referring to the advantage of large size that Mercer has. “It’s very hard for the small registered investment adviser firms to compete with firms like Mercer that are very large.”

He said Mercer has an edge over smaller firms. Due to its size, the firm brings a manifold of other services at wholesale pricing that smaller firms cannot match.

“It’s awfully hard for those small firms to compete and so they need to join large firms to survive,” he said. “Right now it’s a game of survival.”

The choppiness of the economy has triggered fears of a recession and an underperforming investing environment. Barton said the view that the current macroeconomic environment represents a second leg of the bear market and that a recession is on its way is scaring people, forcing them to seek financial advisors that can comprehensively help them under a one-stop shop.

Mercer has a suite of services such as financial planning, investment management, tax planning, estate planning, business retirement plans, corporate trustees, foundations and endowments, among others.

David Barton, Mercer Advisors

“The Fed rate has depressed equity prices and in a falling equity environment arena, that’s when you need the financial planning advice more than ever,” he said, adding that some people are looking to wealth managers to make up for the losses that the financial market is producing.

On the part of smaller firms, Barton said he is seeing a rush to sell their businesses so as to protect valuations before the macroeconomic environment worsens.

War on talent

With this growing demand of their services comes also the war on talent, Barton said, adding Mercer’s bigness is playing out in their advantage. “There are not enough quality financial planners and advisers to service all the new clients that are entering the RIA industry in the fiduciary model,” he said.

The Mercer vice-chairman said there are shifting trends in the market whereby customers are moving away from the broker dealer (BD) model into the RIA space. “The growth and the transition of people moving from the BD model to the RIA model has put increasing pressure on human capital,” he said. “We are actually using M&A to cure talent acquisition shortages.”

Asked about the contribution that private equity is making to Mercer’s business, Barton said that although there are some horror stories with PE ownership in businesses in some instances, it hasn’t been the case for Mercer during his 10-year tenure.

“My experience with PE is tremendously positive,” he said. Private equity’s “expertise is bringing capital to the table, helping acquire C-suite talent, providing exceptional board governance, but at the same time appreciating that they are not the experts and that the management team are the experts to run the company.”