By Mark Armbruster, CFA
We’ve written in the past about the wealth management industry. It’s a rewarding business if you set aside the stress of uncontrollable factors. Market swings, interest rates, and economic shifts keep us up at night. Yet, working with clients and making a positive impact is deeply satisfying. Recently, though, industry dynamics have been shifting rapidly.
M&A Boom
We’ve felt it locally, in Rochester, but the same things are happening nationally. The biggest change is rapid consolidation. I moved back to Rochester 25 years ago to a diverse, robust, and competitive investment industry. At that time, a rule of thumb was that investment firms could sell for about two times their annual revenue. There were a few notable transactions in those days, but merger and acquisition activity was generally muted.
Last year, though, the deals came fast and furious. Many of the largest local firms sold out, mostly to national “aggregators.” These are big companies that grow largely through acquisition and can pay large premiums to selling firms. Rather than two times annual revenue, deals these days seem to happen at six to ten times revenue. This trend is echoed in national RIA M&A reports from firms like DeVoe & Company and Echelon Partners, both of which have documented record-high deal volume and rising valuation multiples over the past several years.
Those can be eye-popping numbers that are hard to pass up, especially when many founders are getting close to retirement age, and the stock market is trading near all-time highs. In fact, a 2025 global wealth and asset management report published by Oliver Wyman and Morgan Stanley predicts more than 1,500 significant transactions involving asset and wealth managers will take place over the next 5 years, with 20% of existing firms being acquired.
In our industry, you don’t just sell your firm and walk away. You generally get a chunk of the money up front, but a sizeable part comes through a multi-year “earn out” where you have to keep the firm intact and growing for three to five years. If you’re 68 years old and know you need to work another five years, today’s high valuations can be awfully tempting. Besides, there is no guarantee that valuations will stay where they are. Who’s to say they won’t revert to two times revenue one day if all the private equity cash that’s driving prices up suddenly moves on to a more attractive industry? So, if I’m honest, the smart thing to do is to sell. But to clarify, we are not. Despite the aggressive marketplace, and the overtures we receive on a weekly basis, we’re happy right where we are.
On the plus side, a lot of new wealth enters our community when a firm gets bought out. A relatively small number of people can make a lot of money, and that can find its way into our local economy through increased consumption and charitable gifts. However, we think the bad mostly outweighs the good. Continuing profits from acquired firms will flow out of our community, and there will be less demand for investment jobs. Often, acquired firms become regional sales offices, and roles such as investment management, operations, compliance, HR, and others, are consolidated at the home office. Research from groups like the Brookings Institution has shown that consolidation in service industries often reduces local employment and diminishes the pool of professionals available for civic and nonprofit leadership. Fewer jobs mean fewer professionals in our community and fewer experts to sit on nonprofit boards and finance committees.
Fees Are Rising
Another dynamic we’re seeing is that consolidation is driving management fees higher. For many years, competition seemed to drive fees downward, but that trend has reversed. We recently studied our local competitors and found that our fees are well below theirs. For example, for an individual with a $1 million account, our annual fee is 0.60%, which is 20% less than the closest competitor (0.75%) and nearly 45% less than the average fee (about 1.07%) among the 18 local firms we analyzed. While the exact numbers vary by account type and size, in every comparison our fees were among the lowest in the market.
Some of our colleagues in the past have argued that we should raise our fees because being so low could give the appearance of being “cheap” or not having the same quality as the rest of the industry. We certainly could dispel that notion if given the opportunity, but often you don’t have that opportunity if prospective clients don’t consider you when they make their hiring decisions.
Interestingly, several studies by Morningstar and academics have shown that fees are the largest determinant of future returns. High fees lead to low returns, and low fees lead to higher returns. Vanguard founder Jack Bogle once quipped that “you get what you don’t pay for.” That is, paying out money in the form of unduly large fees to financial intermediaries ultimately comes out of your retirement savings. We’re here working for you, the funds we use are doing work on your behalf, and the custodian is providing beneficial services. All of us deserve to get paid, but you’re taking all the risks, and you should reap most of the returns. Fees should be low, whether the marketing gurus agree or not.
FinTech/AI
AI seems to be ubiquitous these days, and our industry is no exception. Supposedly, it is going to put us all out of work, but we’ve heard that before. The tractor was going to take all the farm jobs. The car was going to eliminate the need for horsemen and carriage drivers. Automation would replace factory workers. The internet would eliminate research, accounting, and legal jobs. Now, AI will put all white-collar workers out on the street. In many cases, those dynamics played out, but better jobs were created to replace those lost. We suspect the same will be true this time around.
In the meantime, AI does bring efficiencies to our business. We’re using it to assist with research. We’re evaluating products that could increase efficiency in compliance and other back-office tasks. However, we recently demoed an AI trading platform, and it was clear to us that many parts of our jobs will not be supplanted anytime soon. Reports from McKinsey, Deloitte, and the CFA Institute echo this view. AI can streamline workflows and enhance analysis, but it struggles with nuanced judgment, personalization, and the kind of complete tax-aware decision-making that clients rely on.
The customization, care, and rigor that we put into our investment process do not lend themselves to easy automation. There is too much room for error when trading or making specific tax decisions, which could have big implications if done improperly.
We see a future where AI makes our lives easier and may help drive down some of those rising costs, but you only need to spend a little time on ChatGPT, Grok, Gemini, or any of the others to see that there is still more hype than substance in many areas.
If there’s a theme running through all these industry changes, it’s that bigger isn’t always better, faster isn’t always smarter, and newer isn’t always more valuable. What matters most is judgment, integrity, and genuine care for the people we serve.
Our Approach and Looking Ahead
The bottom line is our fees are competitively positioned, we’re not selling out, and we’re deliberate about automation. We have always prioritized our investment and service models over our business model. We could certainly make changes that would put more money in our pockets, but we wouldn’t feel good about them. In the end, we prefer an old-fashioned and personal approach to client service. We’ll continue to look for efficiencies, but only where they don’t compromise the experience our clients receive.
Disclaimer: Armbruster Capital Management’s views as portrayed in this post are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Investing involves risks, and the value of your investment will fluctuate over time, and you may gain or lose money. Past performance is no guarantee of future results.