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Integrated Partners Photo by Diana Britton
Integrated Partners President and founder Paul Saganey

A Fresh Round of First-Timers Headlines RIA M&A in 2019

2019 marked a banner year for investment advisory M&A, including a number of new entrants and first-time buyers making their presence known in the RIA space.

2019 marked a banner year in the history of RIA M&A, with 144 mergers or acquisitions recorded, compared with 90 in 2018, according to TD Ameritrade Institutional’s Mergers & Acquisitions Activity: 2019 Year-End Update, released Wednesday.

Interestingly enough, said Pete Dorsey, managing director of sales and client management at TD Ameritrade Institutional, five firms entered the acquisition fray for the first time with a major splash in 2019, either with a single, substantial acquisition or by stringing together two or more. The new buyers for retail-facing RIAs, he said, came from a wide variety of business models—an investment bank in Goldman Sachs, a "professional acquirer" in Bluespring Wealth Partners, a bank in Emigrant Partners, and two RIAs, Crestwood Advisors Group and Integrated Partners.

The interest of these firms in the independent advisor model, he said, reflects “a fair amount of confidence in the industry as it has matured and become more mainstreamand now Wall Street has broken the seal, with a major investment bank, a name everyone knows, that has never bought an RIA before” making transactions in the space.

The number of first-time buyers of RIAs last year54 compared with 32 in 2018is “unusual,” Dorsey said. But given low barriers to entry, relatively little friction in getting to a scale of operations that brings efficiency gains and the recurring revenues that the financial advisory model produces are attractive qualities to a wider class of buyers.

The purchase of United Capital by Goldman Sachs for $750 million in cash in May was the biggest splash among the new entrants, with Goldman acquiring 220 advisors to go with its Ayco ultra-high-net-worth unit (bought in 2003), giving the investment bank $500 billion in assets under supervision and the means to both offer financial planning to its client base in private wealth, as well as bring banking services to United Capital's financial planning clients. 

Goldman had been keen on getting into the retail wealth management space, but lost out on acquiring Fiduciary Network when Emigrant Bank converted its 75% share of the company to full ownership in November of 2018, according to reports.

Manhattan Beach, Calif.-based investment bank Echelon Partners, a leader in the industry, named Goldman's United Capital deal to its "Deals and Dealmakers of the Year" list for 2019 in its annual RIA M&A Deal Report, issued Wednesday. The firm commented that "the deal signifies a change in strategy for the bank and provides a platform of cross-selling other products such as personal lending and its growing mortgage presence."

David DeVoe, founder of the San Francisco-based consulting firm and investment bank DeVoe & Company, said that Goldman’s move “is another step in the direction related to the power of scale. You can’t help but wonder, Can we expect others to follow suit?” For the past several years, he said, the industry has seen the wirehouses “talk and walk like RIAs and not behave in a fiduciary manner. This gives greater credence to the notion that the wirehouses may have toward the RIA model in greater strides.”

New buyer Bluespring, the RIA acquisition arm of Kestra Financial that was launched in July, made short work of its mandate from Kestra to break into the space by making four RIA acquisitions in the second half of 2019 alone.  

In August, it acquired Hickory Asset Management, a Concord, Ohio-based RIA with nearly $153 million in assets, and Believeland, one of the independently owned financial planning and wealth management entities operating under oXYGen Financial Inc; Believeland has over $400 million in AUM. In September, Bluespring acquired $800 million AUM Beacon Financial Group, with offices in Dallas and Austin, Texas. Then in November, Bluespring announced that it had bought Vector Wealth Management, a $1.1 billion RIA based in Minneapolis. Meanwhile, in October the company beefed up its operations, adding three positions in M&A, transition and growth, and marketing.

Bluespring’s strategy is to woo RIAs struggling with succession uncertainty and to transform them into regional hubs for the firm. It treats principals at the firms it acquires like entrepreneurs, often paying equity incentives. Bluespring executives have said they only look at firms with at least $1 million in EBITDA and will buy no less than a 51% stake in the targeted RIAs.

When it acquires companies that do not have a succession plan, it puts the founder and the successor in its "Successor Academy," a two-year program which brings together other advisors in the same position to discuss operational topics like how to better manage human resources; the hope is those conversations will facilitate an eventual transfer agreement between retiring owners and younger advisors.

Bluespring’s parent Kestra, which was recapitalized last February when private equity firm Warburg Pincus became the majority stakeholder in the firm (in a deal rumored to be between $700 million and $800 million) now has $90 billion in AUM and supports over 2,000 independent investment advisors.

DeVoe said the Bluespring model was interesting because typically RIA buyers are focused on acquiring firms with a management team that will remain in place for five to 10 years. “Looking at the marketplace, thousands of RIA’s need this type of succession plan solution. There’s a big niche for that,” he said.

Another key entrant to the M&A fray in 2019 was Emigrant Partners, which was formed in 2019. A unit of New York Private Bank & Trust subsidiary Emigrant Bank, it purchased minority stakes in NorthRock Partners, a Minneapolis-based RIA with 50 employees and $1.5 billion in assets, in April, and AUTUS Asset Management, a $950 million AUM RIA based in Scottsdale, Ariz., in June.

DeVoe called Emigrant “a potentially compelling solution, especially for a lot of larger advisors” whose value in many cases exceeds what the next generation of owners could potentially afford. Emigrant makes loans to next-gen advisors to buy equity in the organization, a “tool in the woodshed to give them capital for growing the business,” he said.

Emigrant Bank also owns Fiduciary Network, a group of 15 RIAs averaging over $3 billion in AUM that the bank created in 2007. Fiduciary Network operates alongside Emigrant Partners; both are led by industry veteran Karl Heckenberg. RegentAtlantic, an RIA in Fiduciary Network’s stable, merged with New York City-based Hillview Capital Advisors, last June; the combined firm, with about $4.7 billion in assets under management and advisement, is being marketed under the RegentAtlantic brand.

Meanwhile, first-time acquirer Crestwood Advisors Group of Boston, which itself was acquired by Focus Financial in 2018, made a splash in the spring. It announced in April that it had expanded in the Darien, Conn., market with the acquisition of MacGuire, Cheswick & Tuttle Investment Counsel, with about $2.5 billion in assets under management, two offices and 30 professionals.

Three months later, Crestwood acquired Catamount Wealth Management of Westport, Conn., a $3 billion-asset shop.

DeVoe said that with each transaction an acquirer makes, it becomes a stronger buyer. Of the 10 deals that DeVoe’s firm advised on in 2019, 75% of sellers demanded that the prospective buyer have an acquisition under its belt before proceeding. “They think, I want to make sure I’m not the first rodeo for these buyers,” said DeVoe. Crestwood's two acquisitions “strengthens their profile in the marketplace as a buyer in future deals.”

Another first-time buyer, at least under its current moniker, was Integrated Partners, a hybrid registered investment advisor and office of supervisory jurisdiction that specializes in working with CPAs and business owners. The Waltham, Mass., firm added over $2 billion in brokerage and advisory assets in 2019, bringing it to over $7 billion in managed assets overall.

Beginning with its rebranding from Integrated Financial Partners to Integrated Partners in April, the firm had a busy year in 2019. It acquired San Diego-based Mohr Financial Group in April, adding $430 million in managed assets. In October, Lake Avenue Financials’ Alex Chalekian joined the fold, bringing an additional $160 million in assets under management.

In October, Integrated unveiled a partnership with Juncture Wealth Strategies, a Scottsdale-based, fee-only RIA firm with more than $200 million in managed assets. Integrated's acquisitions include firms in California, Washington, Arizona and New Jersey.

Dan Seivert, CEO of Echelon Partners, expects the strong year of acquisitions in 2019 to continue into 2020, assuming markets maintain some momentum, and will likely bring in even more first-time buyers. 

"We expect to see another eight to 15 firms enter the acquisition game" this year, he said. "With hundreds of firms for sale ... there is plenty of room for additional buyers.”

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