How geography ties into wealth management growth

The role of geography in potential business opportunities for financial advisors can be hard to calculate in exact numbers, but the impact of location is changing in notable ways.

Together, the rise of remote and hybrid offices across the industry and the continuing consolidation of registered investment advisory firms have altered the landscape of geographic expansion strategies and M&A deals. Both trends also add complexity to the question of, say, which states have the most potential assets under management in play.

In 2024, out-of-state buyers completed a third of M&A transactions, according to the latest annual survey by deal consulting firm Succession Resource Group. The higher prices that those acquirers paid and the fact that out-of-state investors are “becoming more normal” reflect the altered geographic dynamics after the pandemic, said David Grau, the firm’s founder and CEO.

In the past, “Very few retiring advisors or sellers would consider a buyer who was not within driving distance,” he said, citing the continuing rise in the share of transactions involving out-of-state buyers. “That’s an absurd figure in a professional service business.”

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One recent study tracking the states with the highest and lowest potential AUM also delivered interesting findings on the degree of RIA saturation across the country. To be sure, the data limitations related to some 32,000 firms that have registered with the Securities and Exchange Commission or securities regulators in every state add statistical caveats to any analysis or ranking. Advisor lead generation and client matchmaking service SmartAsset faced extra challenges in its research last month comparing the RIA employment figures in the SEC’s Form ADV database to Census data on household wealth, according to Director of Economic Analysis Jaclyn DeJohn, the author of the report.

“While consumer demand for advisors may vary from place to place, it doesn’t necessarily tell the whole story of the potential assets under management at stake and how competition in the advisor industry may look,” DeJohn wrote. “Both factors may impact the ROI an advisor gets on their time and marketing dollars. With this in mind, SmartAsset ranked 44 states with available data based on the potential AUM available among residents per advisor in the state. Potential AUM in the state was determined by dividing the total net worth across all households (excluding home equity) by the number of active investment advisors registered with the SEC.”

Regardless of the difficulties with this study (or any that tracks RIAs), SmartAsset’s research upended some conventional industry narratives with the findings that, among the five states with the least “potential AUM per advisor,” were Missouri ($2,185,135 per advisor) and South Carolina ($5,234,332), alongside more predictably saturated markets in Georgia ($9,273,254), New York ($2,765,970) and Massachusetts ($9,984,519). 

The other end of the spectrum, involving the states with the lowest market saturation, offered some surprises, too. Washington ($119,989,420) and Hawaii ($917,591,927) shared top-five spots in the rankings with Maine ($341,176,483), New Mexico ($200,937,398) and Mississippi ($136,860,840).

In that sense, the conclusions (with some cautionary notes) followed the pattern of other SmartAsset studies this year that have analyzed the cities where advisor income surged the most in 2024, the states where the ranks of certified financial planners grew the most last year and the estimated lifetime value of professional advice.

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The so-called new normal in the wake of COVID-19 has dampened some other traditional industry geographical dynamics as well, according to Grau.

For one, sellers began reaping the benefits of higher average revenue multiples paid by out-of-state buyers during the pandemic, to the tune of a 16% premium between 2020 and 2024 that fell slightly to 11% for deals struck in the last year alone.

And moves by advisors and wealth management firms to lower-tax states with fewer pandemic restrictions, plus the national trend toward remote work across the industry, are driving some higher valuations in regions like the South and the Midwest, Grau said. At an average price of 3.09 times annual revenue, sellers in the Northeast still command the highest multiples, compared to the South (3.07x), the West (2.9x) and the Midwest (2.7x). But that disparity is “starting to be watered down a bit,” Grau noted.

That enduring shift stems from the fact that wealth management investors have identified “some interesting financial arbitrage” available outside the industry’s standard Wall Street and generally West Coast and East Coast focus, he said. While no one is “going to retire early” based on that strategy, a geographic lens shows how firms in other regions could generate higher profit margins due to lower overhead costs like payroll, he said.

“You are still seeing a cost-of-living difference, and thus it costs more to operate a $100 million RIA in California than it does in Michigan,” Grau said. “The human capital there costs me less to deliver the same service to the same clients for the same fee.”