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Focus Financial CEO Rudy Adolf
Focus Financial CEO Rudy Adolf

Focus CEO Points to Pent-Up Demand for RIA M&A

Despite record M&A activity in the RIA space, Focus CEO Rudy Adolf says the industry is 'underconsolidating.'

Following a record quarter for RIA M&A activity, Focus Financial Partners said year to date it has added three new partner firms, facilitated three mergers for existing partners and merged two RIAs into its new Connectus Wealth Advisers business, the firm’s in-house RIA with a shared services model.

In the first quarter, Focus closed on its deal to acquire Hill Investment Group, a St. Louis–based RIA with $678 million in client assets. In addition, the firm’s Connectus division acquired U.K.-based Watterson Financial Planning.

Connectus launched in December with the acquisitions of three Australian RIAs: Sydney-based Brady & Associates Group; Link Financial Services in Caulfield North, Victoria; and Westwood Group in Brisbane. In the first quarter, Connectus announced the launch of Excelerate, a business development program for its partner firms.

Connectus now has six deals under its belt, including four in Australia, one in the U.K. and one in the United States. CEO Rudy Adolf said he expects it to quickly become one of Focus’ largest partner firms.

“It was kind of this hybrid model that we developed that stands between, on the one hand, the direct holding company deals, which is of course the hallmark of what Focus does, and the mergers that we deploy our resources to help our partner firms grow through smaller transactions typically,” Adolf said on an earnings call Thursday morning. “Connectus is square in the middle in between these two.”

Also in the first quarter, Focus announced it was co-launching an international, multifamily office and wealth management firm in partnership with one of the richest families in the world, Beryllus Capital. Beryllus is a joint venture between Focus and the Hinduja family, who own and run a $50 billion (revenue) international conglomerate with dozens of companies across financial services, trading, oil and automobiles.

On the earnings call, Adolf said there is an ever-increasing pool of potential partner firms for Focus. He said there are 1,000 RIAs with over $1 billion in AUM, and there are 50,000 advisors—both brokers and RIAs—managing over $3 trillion that are over 65 years of age. Yet, the industry is “underconsolidating.”

“Depending on which research group you believe, there may be 150 or so deals in this industry, but there should be probably 250 to 300 deals a year,” Adolf said. “So every year the backlog of deals is really building in this industry.”

In addition, more brokers are moving out of the wirehouses and banks to the RIA channel, providing a constant supply of large firms that Focus could acquire.

“This is an ever-increasing pool of opportunity,” he said.

Overall, the firm announced first quarter 2021 revenue of $394.2 million, up 16.9% year-over-year, on GAAP net income of $2.5 million, down from $34 million a year ago. The firm attributed the revenue increase to the revenue growth from existing partner firms, which was about $42.4 million. The firm’s organic growth rate was 12.2%, higher than the 7-10% the firm expected.

CFO Jim Shanahan said new partner RIAs will contribute to Focus about $7 million in revenue and about $2.6 million of estimated adjusted earnings before interest, taxes, depreciation and amortization.

TAGS: Industry
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