Two recent deals by aggregators for sizable registered investment advisors show how both sides can benefit from such mergers. Late Tuesday Focus Financial Partners said it had signed up Sapient Private Wealth Management of Eugene, Ore., a practice with more than $500 million in assets under management that was formed just a year ago by three former Morgan Stanley Smith Barney advisors. Among other things, the deal will allow one partner to exit the business gradually, his colleague said. And last week, United Capital Financial Advisers said it had bought Peak Capital Investment Services of Denver, Colo., with AUM of $600 million. United Capital said one of the reasons Peak was attractive was Peak’s call center operation that United believes it can leverage throughout its 34 offices nationwide.
Sapient’s transition to Focus was a logical step for both sides, Sapient partner Greg Erwin said. Sapient had worked closely with Focus through its Focus Connections consulting service, which offered advice on finding custodians, handling real estate issues, managing compliance, and many other issues that face advisors who leave wirehouses and venture into independent practice. “Focus invested a lot of time, money and energy in us without anything other than a handshake,” said Erwin, 51, although the company ultimately decided to exercise an option a year later to acquire Sapient’s assets.
The acquisition closed Sept. 30 but wasn’t officially announced until this week to accommodate “a little bit of mop-up,” Erwin said. The cash and stock that Focus provided to Sapient in return for a share of Sapient’s profits also allowed Sapient partner King Martin, 66, to gradually transition from the business he had formed in 1992 with Alan Rexius, 58, Erwin said. (Erwin joined the practice in 1998.) Martin is director of research at Sapient and chairs the investment committee, and has moved away from the client-facing part of the business, Erwin said. The merger also allows Sapient’s partners wide leeway in managing their practice, he added.
It’s common for custodians and aggregators to offer transition programs to advisors planning for independence, said Timothy D. Welsh, president and founder of Nexus Strategy, a consultancy in Larkspur, Calif. “It’s sort of that soft landing that these breakaway guys need,” Welsh said. “These companies can put together a package, and since they’re doing it multiple times, they can get efficiencies that can save costs and provide a free valuable service to entice these guys to go.”
United Capital’s acquisition of Peak Capital will provide the sellers with an opportunity for major growth, Peak President David Peterson said, but that deal works both ways, the two firms agreed. Matt Brinker, United’s senior vice president of partner development and acquisitions, said Peak operates a call center that it aims at 401(k) plan clients. Peak works with clients in a position to retire in three to five years; it uses the call center to set up meetings and educational seminars. The service makes the assets stickier when the clients retire and face the decision of whether to move their money out of the 401(k) and into something else, Brinker said.
United hopes to make the call center operation available to other partners at practices across the entire company in the second quarter of next year, he said. “We see an opportunity with our other offices around the country to effectively borrow and replicate what has made Peak so successful to date—a proven method of developing business through a call center campaign,” he said.