Focus Financial said Thursday its organic revenues were up 28.8% year over year in the second quarter, up from the 23% to 26% range that the firm had estimated for the quarter. The firm said it has a record pipeline of RIA deals in the second half of 2021, with CEO Rudy Adolf reiterating that the industry is currently underconsolidated and that his firm is best positioned to take advantage of that pent-up demand.
“Depending which consulting group you believe, this industry does close to 200 deals a year,” Adolf said on a call with analysts. “We believe, based on the core demographics, this industry should be doing another 200 to 400 deals more a year.”
“Whenever this wave of consolidation comes through, we’re simply better positioned than anybody else to take advantage of it.”
Year-to-date, Focus closed 14 transactions, including five new partner firms and nine mergers, including three for Connectus, the firm’s in-house RIA with a shared services model.
Adolf said the firm currently has about 76 RIAs in the U.S. as well as the United Kingdom and Australia, and two-thirds of them are interested or active in the M&A space.
Total revenue for the quarter was $425 million, up nearly 36% from the year-ago quarter, driven primarily by revenue growth of existing partner firms. The firm’s GAAP net income was $5.2 million, up 56% from a year ago.
Adolf attributed the strong organic growth rate to the "hyper cycle" that the RIA industry has been in since the 2020 COVID crisis.
“During a crisis, the RIA industry weathers the storm better than any other segment in the wealth management industry,” he said. “But then even more important, at the end of this crisis, you see a fundamental acceleration that dwarfs what’s happening in any other segments in this industry, where ultimately the success of the fiduciary RIA model brings more assets into the RIA space, of course at the expense of the traditional wirehouses and brokers and banks.”
This is a multiyear effect, Adolf added, and he expects the RIA industry's growth rate to normalize eventually to about 10%. That compares with a normalized growth rate of 3% to 4% for the wirehouses, he said.
“Particularly in crises and after crises, our industry really delivers for our clients more than just about anybody else and you see it in the growth numbers we’re demonstrating here.”