Ethereum ETFs put up impressive numbers in their trading debut this week, but may face an uphill battle to find their way into advisors’ portfolios.

BlackRock, Fidelity, and Invesco are just a handful of companies that launched exchange-traded products Tuesday that track the second-largest digital currency. Over $1 billion was traded between the nine ETFs on the first day of trading alone. It’s an encouraging debut that catapulted some of the more popular funds into the top 50 highest-traded first days on record, according to Bloomberg Intelligence.

Into the Ether

While bitcoin is often considered a store of value because of its limited supply, ethereum funds are seen as a bet on blockchain technology and the crypto industry itself in the years to come. If cryptocurrencies are able to transform the future of finance, the ethereum network could likely be at the forefront. “Compared to a normal ETF launch, which rarely see[s] more than $1m on Day One, all of them have cleared that number and then some,” wrote Bloomberg senior analyst Eric Balchunas in a post on X about the research. It’s not the only example of over-performance relative to expectations:

• Four of the funds actually landed in the top 10 launches of the past year (excluding those crazy Bitcoin ETFs).
• Best performing products were from household names like BlackRock and Fidelity, and from digital-native issuers like Grayscale and Bitwise.
• A fund from 21Shares, which saw the least inflows in the first trading day, still ranked in the top 10% of launches in the past 12 months.

“Just another way to illustrate how unusual all this is,” Balchunas wrote in a separate post on X.

However, ethereum funds could be a tough sell for advisors. Spot bitcoin ETFs, which have been off to a blistering pace since January, have yet to fully catch on with mainstream advisors, and are not even available at some of the top brokerages. Some advisors say they’re just not interested in recommending them to clients, and are still worried about perceived risks. A recent CNBC survey found most clients aren’t interested in having conversations either. If clients don’t care about crypto, advisors won’t Ether.

Stake Out: Ethereum ETFs trading in the US also do not offer staking rewards to investors. That involves locking up a portion of the crypto in a wallet to help support the network’s operations, like validating blocks and providing security in exchange for more ethereum. (Don’t ask me how it works.) There are more than 32 million ETH tokens currently being held for staking, worth more than $121 billion, according to a report from Blockworks. Experts said the funds may not be as popular with investors if they aren’t able to benefit from staking the crypto to earn extra coins. Big mistake.

Private equity is hungry, and wealth management is on the menu. Investment funds managed by PE firm KKR have agreed to acquire the $150 billion wealth manager Janney Montgomery Scott from the Penn Mutual Life Insurance Company, marking another major equity deal in a busy year for the industry. 

Once finalized, Janney will become a standalone private company and continue to operate independently, according to a release. Terms of the deal were not disclosed.

KKR’s investment is being made primarily through its North America Fund XIII, and the company said it will support the nearly-200-year-old firm in creating a broad-based equity ownership program, available for all of its 2,300 employees.

Pretty Big Deal

The KKR deal is just the latest example of PE diving into the wealth management space. In June, private equity was the financial backing for 95% of the month’s wealth management M&A transactions, spanning 96% of that month’s purchased assets, according to Fidelity:

• Earlier this month, Bain Capital, one of the largest PE firms in the world, announced it will buy wealth management software company Envestnet in a deal valued at $4.5 billion. 
• In April, Clearstead Advisors — an RIA backed by PE Flexpoint Ford — acquired the assets of Norfolk, Virginia-based Wilbanks Smith and Thomas Asset Management, a wealth and investment management firm with over $5 billion in AUM.

Feed the Beast: PE’s approach toward wealth management has been viewed as a mixed bag by industry experts. Advisory firms told Barron’s the industry’s presence has helped by professionalizing their firms, enhancing governance, and providing the capital necessary to grow. But PE ownership runs the risk of cost-cutting during poor market conditions, and even Taylor Swift (the unofficial queen of capitalism) had a problem with the industry after a PE firm bought up the masters to her first six albums. Can’t wait for the single to drop.

Independent financial advisors channeled their inner game-show host Monty Hall (or Wayne Brady, for those under a certain age) this past quarter and said, “Let’s make a deal!” 

The registered investment advisor market announced 75 mergers and acquisitions in the second quarter, involving almost $1 trillion in assets under management, according to boutique investment bank Echelon Partners. While volume was down from 90 deals in the first quarter, it’s the second-most active Q2 in the last five years, and puts the industry on pace to exceed 332 total for the year. 

The heightened deal activity points to slight optimism for cheaper financing in the future, and advisory firms are gearing up for Federal Reserve rate cuts. “The Fed has signaled that rate cuts are impending, which will have a direct flow through to financing costs, hence resulting in a more attractive M&A environment,” Echelon said in a statement to The Daily Upside.

Pump Up the Volume

In the past few years, the second quarter has been a slower time for deals in the RIA market. Since 2019, the median number of deals for Q2 was 59.5, so this year’s season marked a slight uptick: 

• The bulk of the deals (84%) were conducted by strategic acquirers, which are primarily RIAs; the remaining deals (16%) were handled by financial acquirers, primarily PE firms. 

• AUM per deal made by PE investors in the second quarter trumped RIA-based deals, at $54.6 billion and $3.7 billion, respectively. 
• The largest transaction of the quarter was Fisher Investments: It sold a 20% stake to Advent International and the Abu Dhabi Investment Authority for nearly $3 billion in a deal that valued the wealth manager at around $13 billion. 

A Little AI Assistance: One of the most popular subsectors for deals was wealthtech, which experienced 33 transactions this past quarter, highlighting the market’s increasing demand for data analytics. “Strategic buyers recognize the competitive advantage of enhancing advisor technology on their platforms, which can drive organic growth,” Echelon said. “Firms throughout the industry are looking to create robust data platforms to maintain competitiveness with the quickly advancing ecosystem.”

Advisory firms aren’t collectively on board yet, but the Boston Consulting Group expects fintech — which includes products and technology used for both ultra-high net worth and consumer-level wealth management — to reach a market size of $1.5 trillion in revenue by 2030, roughly five times larger than it is today.