- January 23, 2021
- Posted by: Bastion team
- Category: Markets
Business Insider is rounding up firms to watch and detailing executives’ plans for this year.
After a record year for wealth management combinations, with acquirers scooping up more small wealth managers than in any year past, more deals are expected to take shape in 2021.
Registered investment advisors, or RIAs, operate as independent shops managing wealthy clients’ money and financial lives. They have multiplied in recent years, luring financial advisors away from the largest bank-owned US wealth managers with offers of more flexibility and control over their clients.
The universe has now grown steadily in recent years, and now is larger than it has ever been. After the number of RIAs hit a record in 2019, the industry by number of firms grew another 4% in 2020 to about 13,500, according to the Investment Adviser Association.
Even as practices consolidated and were gobbled up by acquirers, that marked a net increase of 501 SEC-registered firms. Overall, RIAs manage $97 trillion in regulatory assets under management, by the IAA’s estimate, up 16% from some $84 trillion a year prior. Private equity firms have taken an interest in that growing pool, and have fueled aggressive RIA growth and consolidation in recent years.
The total number of RIA deals is expected to rise between roughly 5% and 10% from last year’s levels, according to data from Echelon Partners, a wealth management industry-focused investment bank and consulting firm.
That would mean between 215 and 225 transactions this year, and may even be a conservative projection, said Mark Bruno, managing director at Echelon. Last year marked the industry’s largest annual deal total on record.
“The pipeline of deals in progress is robust, and we expect deal activity will accelerate as the size and sophistication of buyers and sellers has increased significantly over the last several years, and more capital continues to target the US wealth management industry for investment,” Bruno told Insider.
The investment bank DeVoe & Company estimated in a report this week that RIA M&A “is likely to continue increasing for the foreseeable future.”
“We may see a lull later in 2021 following the recent frenzy,” according to the firm. “However, we expect that a surge in small and mid-sized deals will more likely contribute to around 45 transactions per quarter for the near term.”
With January already ushering in a wave of M&A activity among independent wealth managers, Business Insider has rounded up firms to watch.
CI Financial, the Toronto-based wealth and asset management advisory firm that started trading on the New York Stock Exchange in November, started making aggressive inroads into the US wealth management market last year.
The firm, led by Chief Executive Kurt MacAlpine, last year directly acquired 10 registered investment advisor firms and helped facilitate another three deals that represented acquisitions by those firms.
The firm added a total of $30.7 billion in client assets through deals in 2020, which includes $22 billion through US-based acquisitions and another $8.7 billion — or some $11 billion in Canadian dollars — from its deal to acquire a majority stake in Ontario-based Aligned Capital.
Earlier this month, the firm said it had acquired firms in Dallas, New York City, St. Petersburg, Florida, and in Houston.
“CI is focused on expansion through acquiring high-quality RIAs, with great management teams that share our vision wherever they may exist within the US,” MacAlpine told Insider.
CI Financial oversaw some $182 billion ($231 billion Canadian dollars) as of December 31.
Read more: Uber-rich investors hungry for growth have turned their sights on the private market. Here’s how wealth firms like Citi and UBS are transforming their businesses to meet those client demands.
MacAlpine said the firm does not have targets for the numbers of deals or assets under management for this year because he believes that “solving for a number of deals or an asset level often leads to comprises in quality.”
“What I can say is that, if the market dynamics remain consistent in 2021 — specifically the same quality of firms at the same valuation levels — you could expect us to grow at a similar level to what we did last year,” he said.
MacAlpine joined the firm as chief executive in 2019 from WisdomTree, the New York-based asset manager, where he oversaw global client-facing operations, including distribution. Prior to WisdomTree, MacAlpine was a wealth- and asset management-focused partner at McKinsey in New York.
CI Financial, which also trades on the Toronto Stock Exchange, is set to report fourth-quarter earnings results on February 11.
Focus Financial Partners Ruediger “Rudy” Adolf, the founder, chief executive, and chairman of Focus Financial.
Focus Financial Partners
When Focus Financial Partners went public on the Nasdaq three years ago, its debut marked the first real chance for stock investors to gain exposure to the fast-growing world of independent wealth management.
Since then, its performance has been tested by market volatility the pandemic spurred last year, but shares have sailed to all-time highs with the rest of the stock market. And the industry’s independent channel has continued to, at once, lure traditional financial advisors away from wirehouse models and see intense consolidation.
The firm, based in New York and led by founder and Chief Executive Ruediger “Rudy” Adolf, is seen favorably by Wall Street analysts primarily for that reason: combinations in the crowded wealth space, which often demands scale, are happening at a rapid clip. It has also sought to show investors that it can ease its debt load, which analysts have noted as a risk.
Focus, backed by private equity firms KKR and Stone Point Capital, recently capped off an active year of acquisitions.
“We will continue to be active in the US, which is by far the largest M&A market for independent wealth management, as well as the other markets we have a presence in — Australia, Canada, and the UK,” said Tina Madon, the firm’s head of investor relations and corporate communications.
Focus logged “one of the best years in our history in terms of volume,” Madon said, with the firm completing 25 deals. CornerStone Partners, a Charlottesville, Virginia-based RIA and outsourced chief investment office specialist, was the largest that Focus acquired last year with $9 billion in assets.
“We entered 2021 with strong momentum and we expect it only to increase this year as more of our partner firms accelerate their growth through mergers. Additionally, our partner firm Connectus has a robust pipeline and will further expand its global footprint in 2021,” Madon said.
The firm does not target a specific number of acquisitions or assets under management. It reported some $200 billion in overall assets as of September 2019 during its November investor day that year. The firm has not since updated its assets under management in filings or other presentations, and Madon declined to provide an updated figure.
The number of firms Focus has acquired rose from 63 firms at the end of 2019 to 71 a year later. Some of those firms have acquired RIAs themselves, known as tuck-in deals.
“We believe recent accelerated M&A is likely to continue within the wealth management space, as firms capitalize on the aging of the financial advisor population, which has been discussed for many years, but is perhaps beginning to manifest after the market volatility” that emerged early last year, Goldman Sachs analysts noted in a report earlier this month, pointing to Focus as a “primary beneficiary” of that trend along with Stifel Financial and LPL Financial.
EP Wealth Advisors The executive leadership of EP Wealth, from left to right: cofounder Brian Parker, president and Chief Executive Patrick Goshtigian, and cofounder Derek Holman.
EP Wealth Advisors, a Torrance, California registered investment advisor and financial planning firm with some $10.7 billion in assets under management as of December, has plans to pick up acquisitions this year.
The firm is aiming to add between $2 billion and $3 billion in assets under management through acquisitions this year, a spokesperson said.
EP Wealth plans to expand across the Central time zone with an eye to Houston, Austin, Minneapolis, and St. Louis, and is “also always interested in continuing to add like-minded firms in the areas we already have a presence.”
Patrick Goshtigian, who was president of the firm before he was also named chief executive in 2018, has overseen the firm’s acquisition strategy. Goshtigian joined about a decade ago, after working with Nuveen Investments.
Last year, EP Wealth completed four acquisitions overall, in Texas, Arizona, Utah, and near home base in Torrance. The firm is expected to close another acquisition in the coming weeks, the spokesperson said, and earlier this week added a Vancouver, Washington-based wealth management firm overseeing some $700 million in assets.
EP Wealth cofounders and managing directors Brian Parker and Derek Holman in 1999 formed Premier Financial Management, a predecessor to their modern-day firm.
Parker and Holman have known each other for years. They were childhood friends working behind the counter together at a frozen yogurt shop in San Diego during high school, the origin story goes, and after working separately in finance after graduating college, they came together again to found a wealth advisory firm.
In 2017, EP Wealth took a minority investment from Wealth Partners Capital Group, a firm that launched that year with a focus on aggregating small US wealth managers. Along with EP Wealth, it also invested in the Forbes Family Trust and MAI Capital Management.
Captrust Fielding Miller, the chief executive and cofounder of Captrust.
Captrust, a Raleigh, North Carolina-based independent RIA specializing in investment advisory, investment management, and planning services, plans to add roughly between five and seven firms this year, a similar rate it has acquired new practices in recent years.
Wilson Hoyle, managing director and head of Captrust’s advisor group, told Insider that the firm’s goal is to have a Captrust office in the top 40 US metropolitan markets by 2026. The firm is currently in 24 of those markets.
“For the markets that we are already in, we are focused on building a more robust presence by adding complementary wealth or retirement practices,” Hoyle, who oversees the firm’s business development and practice management initiatives, said.
Hoyle started the firm’s professional athlete division, which has a focus on the financial lives of professional athletes and entertainers.
Captrust, which directly oversaw some $50 billion in direct assets under management as of September 30, has 730 employees.
The firm under cofounder and Chief Executive Fielding Miller acquired seven firms — with 94 advisors — last year. The firm now counts 330 financial advisors across the US.
Miller has long worked in the financial advisory business in North Carolina. He started his career with North Carolina National Bank, a predecessor firm to Bank of America, and later the Charlotte-based brokerage Interstate/Johnson Lane. Captrust was founded in 1997.
Hightower Advisors Bob Oros, the chief executive of Hightower Advisors, joined the firm in 2019.
Hightower, the Chicago-based wealth management firm, started off the year with a milestone announcement: Bel Air Investment Advisors, a Los Angeles-based firm overseeing $8 billion in assets under management, would be its largest-ever acquisition.
Hightower acquired Bel Air, which works with high-net-worth clients, families, trusts, and foundations with at least $20 million in investable assets, from Fiera Capital.
Hightower, founded 12 years ago, declined to specify the number of deals it is planning to carry out this year. But its business model is centered around acquiring wealth managers, and Hightower was among the most active acquirers in 2020, according to DeVoe & Company.
Hightower made eight acquisitions last year, according to DeVoe, and has completed 14 total transactions since early 2019.
“We seek out firms with high-quality leadership teams, a strong strategy, a proven ability to grow, high client retention, a diverse advisor base, and the next generation leaders already in place,” Hightower Chief Executive Bob Oros, who joined the firm in 2019 to shift the firm to an acquisition-based business model, told Insider.
Oros was previously with HD Vest Financial Services, and prior to that role was a senior leader at Fidelity Investments. Last year, Hightower hired Stephanie Link, a frequent investments commentator for CNBC and the former head of global equities research at Nuveen, as Hightower’s chief investment strategist and portfolio manager.
Like other firms that have become active RIA acquirers, Hightower is backed by private equity.
The firm Thomas H. Lee Partners first invested in Hightower three years ago. Last month, Hightower raised fresh capital from the firm, terms of which were not disclosed, with investments from funds advised by Goldman Sachs Asset Management, Neuberger Berman, and Coller Capital.
As of December 31, Hightower directly managed some $80 billion in assets.
Mercer Advisors Dave Barton of Mercer.
Mercer Global Advisors, a Denver, Colorado-based wealth management firm overseeing some $27 billion in client assets as of December, is planning “at least a dozen” acquisitions for this year, Vice Chairman Dave Barton told Insider.
Mercer, majority-owned by private equity firms Oak Hill Capital and Genstar Capital, completed 13 deals last year, Barton said. He has held other senior leadership roles at Mercer, including chief executive between 2008 and 2017, chief operating officer, and general counsel.
During his time as CEO, he took on responsibility for growing Mercer’s national presence, according to the firm’s website. He stepped down from that role in 2017 to focus on growing the firm through acquisitions.
The firm on Thursday announced its latest deal, a wealth management firm based in Spokane, Washington overseeing some $440 million in assets under management for about 400 clients.
The firm has some 600 employees in all, more than half of whom are client-facing. Mercer was founded in 1985.
Wealth Enhancement Group Jim Cahn, the chief investments and business development officer of Wealth Enhancement Group.
Wealth Enhancement Group
Wealth Enhancement Group, a wealth management firm near Minneapolis that oversaw some $26 billion brokerage and advisory assets as of December, had a “banner” year in 2020, said Jim Cahn, chief investments and business development officer.
That was up from $16 billion the year prior, Cahn said.
It completed six total transactions, the largest of which was SVA Financial Group in December with $3 billion in client assets. Its second-largest acquisition last year was Atlanta-based JOYN Advisors, which oversaw $1.3 billion in client assets at the time of the deal in February.
“We’ve become very adept at identifying strong wealth management practices across the country that can contribute positively to our continued growth,” said Cahn, who added the firm does not target a specific number of acquisitions.
“Our growth strategy over the last six years has not been about driving growth for its own sake, but about finding great planning-focused practices that are in alignment with our team-based approach,” he said.
As of January, the firm has 182 financial advisors and approximately 100 specialists focused on areas including investment management, tax strategies, and estate planning.
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