Independent Thinker

Few independent firms have made as big a splash in the last couple of years as New York-based National Financial Partners. Founded in 1998, the firm has followed the unusual and enormously successful business plan of buying up firms at the smaller end of the wealth management market. Its average deal is for about $3 million to $5 million, and it buys around 20 to 25 firms a year. Since going public

Few independent firms have made as big a splash in the last couple of years as New York-based National Financial Partners. Founded in 1998, the firm has followed the unusual — and enormously successful — business plan of buying up firms at the smaller end of the wealth management market. Its average deal is for about $3 million to $5 million, and it buys around 20 to 25 firms a year. Since going public in September 2003, the firm has bought 10 firms, bringing its total to 138, and its stock has risen 16 percent to $31 since its IPO. Its business turns on estate planning and employee benefits, but fee-based financial planning generates 15 percent of revenues and is expected by many to grow as the firm does.

Registered Rep.'s Will Leitch spoke with chairman and CEO Jessica Bibliowicz about her firm's success so far, the inherent dangers in the current regulatory environment and the advantages of being debt-free.

Registered Rep.: Do the majority of your acquisitions come from small firms coming to you, or are you the aggressor?

Jessica Bibliowicz: It's almost always us going after them. We're looking for firms that are not for sale. It sometimes takes some persuading, but if we really think what a small firm is doing fits with what we're doing, we'll go after it. With the publicity we've received recently, our brand recognition has increased. When we make a phone call, they know who we are and what we're about. It's easier to get a good reception from them, even if they're not immediately interested in selling. We've always believed in size being a very important part of what we do, and we've tried to put a pretty big distance between ourselves and our competitors in that respect. Few people can do an acquisition program for these firms that isn't an exit program. We give firms with an entrepreneurial spirit a chance to be acquired and still do what they do, only with our backing. We're clean and conservative, which is exactly how most of these small firms are.

RR: Opinions differ as to whether or not this is a time to jump into the financial planning business or hold off for a while. Do you plan on growing the financial planning aspect of your business?

JB: It's a very dynamic part of our business, and very important, but we're not trying to market-time any of the segments. We don't feel the condition of the market or the industry affects what we're looking for in the companies. If anything, it maybe has an effect on the valuations, but not in the overall business. But we definitely feel financial planning is a vital part of what we do; we started out with estate planning, so we have a base in that, but we're certainly going to keep growing. We're not changing what we're doing at all. It might have been groundbreaking in 1999, but it has worked so well, we're just gonna stay on track. There are a lot more independent providers of high-end wealth management services, and we have been a beneficiary of that trend. We feel we've only scratched the surface of what our market share could be.

RR: The current regulatory machine is churning out new rules and legislation at a feverish pace. How much more difficult has it made your life? Have you had to make any major adjustments?

JB: We have to do a lot of work before we even have any prospective firms come in. It's a lot more due diligence. There is a lot of stress on being a broker/dealer these days. At the end of the day, we have to deal with — and decipher — all the new rules. Fortunately, we're large enough to be able to do our own surveillance without having to rely on outside researchers. We have to be very thorough about it, and I think we are. We're very calibrated to what a lot of small firms are doing, so we can get a feel for how they run their business easier.

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