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Fidelity Roundtable Spurs Debate on Private Equity Money in Advisory Firms

The group also discussed what was driving acquisitions among independent advisory firms.

For independent financial advisory firms looking to grow, is private equity investment a tailwind or an anchor? 

That was the topic of an advisor roundtable hosted by Fidelity Investments during their Inside Track conference in New York on Tuesday.

When David Canter, an executive vice president at Fidelity who heads the RIA segment and Fidelity Clearing & Custody Solutions, likened Ladenburg Thalmann Financial Services, an investment firm focused on independent broker/dealers and advisory firms, to a private equity firm, he was quickly corrected by the public company’s CEO, Richard Lampen.

“I’m going to humbly take offense to your comment that we’re like private equity because we view ourselves as being the anti-private equity,” Lampen said.

Lampen went on to acknowledge that independent b/ds have had success with private equity backers, but said he thought advisory businesses required more long-term commitment from stakeholders than most private equity firms allow for their portfolio companies. Taking private equity money could be “a very destabilizing thing for the advisors.”

Kestra Financial President and CEO James Poer defended independent advisory firms that have taken private equity money, saying sweeping generalizations about those deals are often misunderstood.

“It’s been a fantastic process for us,” Poer said. “I recognize it’s not that way for everyone. I think you have to be smart about who you partner with, be smart about your plans...and if you’re smart with that process and what your doing, I think it can be a really successful approach.”

Michael Bapis, a partner and managing director of The Bapis Group with HighTower, also supported private equity investments in the space. “You can only grow organically so fast.” If firms see opportunity to grow inorganically, he said, “where does that money come from?” Bapis said the for all the talk about the maturity of the independent advisory space, it’s still only in its “second or third inning.”

Independent b/ds have been consolidating in recent years for a confluence of reasons, chief among them the regulatory and compliance burden as more firms move toward financial planning. And there is a demand for technology that enables the scalability of an enterprise, also adding to the consolidation.

“The barriers for entry for the individual advisor are going up,” Farr, Miller and Washington CEO and Founder Michael Farr said.

The general consensus among panelists was that it’s still a seller’s market, though, as market performance has propelled fee revenue for firms.

Jack Petersen, founder and managing partner of Summit Trail Advisors, said in August, and again on Tuesday, that his firm had not taken private equity money and was actively trying to grow organically.

However, he said the firm still has a line of credit with a bank at the ready to capitalize on any opportunities.

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