Break-Away Advisors Drawn to RIA Consolidators

Advisors who flee the captive channel for the independent channel often end up at broker-dealers like LPL Financial and Raymond James, but it’s the fee-based consolidators of investment advisors that are scoring even bigger.

Consolidators, sometimes known as aggregators, provide technology, bookkeeping, budgeting, operations, marketing and compliance services to fee-based registered investment advisors (RIAs).

They also provide capital so that RIAs can grow through the purchase of other RIAs in a financial world edging ever closer to a fiduciary standard of advice and fee-based models.

Consider the billion-dollar advisors who have left the wirehouse channel for the independent channel consolidators in recent years.

The Billion-Dollar Parade

In April, WealthTrust, itself a consolidator for many years, brought $6.4 billion in assets to HighTower Advisors.

In 2015, it was advisors Stephen Dreiling, Chris Johnson, Brian McDowell and Jason Rosener who took their $2 billion advisory from Compass Bank to United Capital.

In 2010, advisor Michael Brown ditched US Trust and brought $6 billion in assets to Dynasty Financial Partners.

That same year, advisors John A. Pickett, Jack Pratt and Roberta Kayatta took their $8.5 billion book and left RBC Wealth Management for CapTrust Financial Advisors.

In 2009, in one of the largest deals, advisor Richard Saperstein left Bear Stearns with $10 billion in assets under management for HighTower, which bills itself as the “nation’s largest RIA dedicated to providing advice, not selling product.”

In the first six months of 2017, HighTower added 21 new advisor teams who brought with them $10 billion in client assets, HighTower said in a news release.

Seven of the top 10 brokers measured by AUM who moved from the captive channel to the independent channel between 2009 and 2015 landed at the feet of the consolidators, said consultant Chip Roame, who tracks the wealth advisory market.

There were an estimated 29 consolidators in the marketplace last year, an increase from about 25 in 2011, said Roame, managing partner of Tiburon Strategic Advisors.

Hightower, Dynasty and United Capital are frequently cited as big consolidators, but Roame also lists lesser-known companies like Exos Partners, Focus Financial Partners, Moneta Group and Sanctuary Wealth Services as consolidators.

Between 550 and 650 advisors or advisor teams (those who weren’t terminated) move every year. While headlines tout the largest transactions, relatively few teams actually shift from the captive to the independent channel every year, Roame estimated.

Most moves takes place within the same channel, or intra-channel, he said.

A Source of Capital for M&A

Once advisors join a consolidator’s network, growth prospects brighten with new sources of capital.

With the average age of financial advisors in their late 50s, agency principals and brokers need to think about how they are going to exit the business.

For RIAs, who better to sell to than another RIA or RIA consolidator?

In January 2007, consolidator Focus Financial Partners bought Buckingham Asset Management, which then went on to buy 22 advisory firms or teams, according to the DeVoe RIA DealBook, which tracks mergers and acquisition in the RIA market.

That was 10 years ago, but since then, the M&A market has only grown.

The first quarter of 2017 was the most active quarter ever for M&A in the RIA industry with acquisitions among RIAs rising 29 percent to 44 transactions over the year-ago period, according to the RIA Deal Book.

Large sellers, RIAs with assets under management of between $1 billion and $5 billion, sold in record numbers in 2016. More large RIAs are finding themselves with shallow management benches under the senior partners, DeVoe said.

Junior partners often find they cannot afford to buy the RIA from the senior partners or founders, so that leaves owners looking to sell to someone else and that’s when the consolidators step in, DeVoe said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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