New $2.7 Billion RIA Eschewed Aggregator Route

Savant Capital Management and The Monitor Group say combining forces gives them a more holistic level of expertise and a retirement route for their advisors – more importantly, they aren’t giving up equity to aggregators.

The emergence of a new national RIA with $2.7 billion in assets under management underscores the continued consolidation of the registered investment advisor business as advisors seek new ways to improve scale and services, industry experts said.

On Wednesday Savant Capital Management and The Monitor Group, two fee-only RIAs, said they would combine their assets and form a new company, Savant Capital LLC. The new firm will have 2,400 clients and a staff of more than 90, including 22 advisors, when it finally launches sometime this summer.

It’s not a merger, since no one exchanged payment for the other’s assets, but it’s not a marriage of equals either. Savant Capital Management is the larger of the two companies, with $2.2 billion in AUM and eight offices in Illinois and Wisconsin; it formerly appeared on Registered Rep.’s list of top 100 RIAs. It will have three of the five seats on the new firm’s board of managers, and chairman and prinicpal Thomas Muldowney will chair. The corporate headquarters will remain at Rockford, Ill.

Savant and Monitor became acquainted through their membership in the Zero Alpha Group, an international network of advisor groups that studies issues of practice management and other subjects related to the industry. Both companies had been talking about joining forces since 2007; the conversation turned more serious a year ago, Monitor President Glenn Kautt said.

While Savant has a stronger brand, Monitor has expertise in tax and estate planning.

“Granted, given enough time and money we could have each developed those things ourselves, but it becomes a pretty big burden to do that,” Muldowney, 59, said.

“We didn’t have to change a cotton-picking thing if we just wanted to cruise,” Kautt, 64, said.

Muldowney and Kautt, who will be vice chair at the new firm, are interested in bringing on other RIAs in the future “as opportunities present themselves,” Muldowney said.

The two executives said their business model provides advisors with the opportunity to retire in a less complicated fashion than is afforded under other models, such as aggregation, in which a larger firm buys a smaller firm or takes an equity stake in it. Those deals often tie advisors to the business longer than they want to stay, Muldowney said.

“We don’t want to find ourselves being pulled together by aggregators,” he said. “The aggregator always supplies capital, but after they supply capital, they have daunting demands on the company that may not necessarily meet the best needs of the clients or the employees or the other equity owners.”

RIA mergers and acquisitions picked up speed in the first quarter, according to Schwab Advisor Services, with 17 deals reported with total AUM of $24 billion. It was up from just 13 deals in the fourth quarter of 2011 with total AUM of $6.2 billion. Most of the deals represented acquisitions or stakes by large aggregators in smaller RIA firms.

Advisors to the new Savant Capital said the deal could potentially be the largest RIA combination of the year. Some industry observers said that could be the case.

“The size is great, but I wouldn’t say it’s unprecedented in size. It’s certainly significant,” said Philip Palaveev, president of Fusion Advisor Network in Elmsford, N.Y. The combination of the two RIAs “could be an interesting alternative” to the alternatives afforded by aggregators, he said.

The concern that some RIAs have with joining aggregators is real, Palaveev said, since the buyers have their own ideas about how to run the businesses they acquire.

“If you’re going to buy something but not change it, how would that create value for your shareholders?” he said.

Savant-Monitor is “another indication of the growing sophistication of RIAs in mergers and acquisitions,” said merger consultant David DeVoe of DeVoe & Company in San Francisco. Companies with similar goals and objectives, as these two have, have a natural attraction toward each other, he said.

Advisors who want to work with a larger firm in order to solve practice continuity issues may find that a combined practice model will fit their needs, he said.

“Scale does matter in valuations. You start to move into an area where you command higher multiples of value,” DeVoe said.

But if advisors are considering a combination practice as a means of exiting their own when retirement time rolls around, they need to plan carefully, he said. The same advice that advisors give their clients about investing—“You want to think strategically and not try to time the market”—also applies to the sale of their own practices, DeVoe said.

“It’s not necessarily a silver bullet,” he said. “You need to be thinking two steps ahead.”

Advisors at Savant and Monitor are discussing the combination with their clients to persuade them to join the new firm, an undertaking that should take about two months, Kautt said. He expects nearly all will come aboard.

“We don’t see a lot of people running for the hills,” he said.

Both sides share similar tech systems, with portfolio management and financial planning systems “essentially identical,” Kautt said.

In addition to Muldowney and Kautt, Savant CEO and principal Brent Brodeski, 44, and Savant Chief Operating Officer Richard Bennett, 49 will be on the new board of directors. Monitor will keep its offices in McLean, Va. and in Florida .Kautt said no layoffs are planned in the combination.

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