NewEdge Advisors, a New Orleans–based registered investment advisory firm that provides back-office services to other independent advisors, is going into acquisition mode, hatching a plan to buy "growth-oriented" practices run by younger advisors, and then help those firms acquire and manage other practices within their region, according to executives.
The acquired offices will take on the NewEdge branding, and the employees and principals will become W2 employees of the firm.
The RIA, which is a large enterprise of LPL Financial, expects to make offers to many of the advisory firms it works with, as well as external advisors who fit the buyer's criteria. That means advisors who will stay with the firm for 10 to 15 years, with at least $2 million in earnings, have a planning-oriented business and are fiduciaries with clean regulatory records.
Alex Goss, co-founder of NewEdge Advisors, said the program was launched to meet a demand coming from their advisors, who are 49 years old on average and have the capacity to acquire growth, but need the financial support.
“We have these younger advisors that are already highly skilled and have demonstrated the ability to grow a large practice and take care of their clients. And then we have them wanting to buy practices and needing economic support doing that. And then we were coming across all these advisors that wanted to sell their businesses, but they didn't have a firm or a place that could take care of their clients at the local level,” Goss said.
When the "big aggregators" acquire a firm, Goss said, it's usually the case that they are acquiring a seasoned advisors' practice with a promise that the next-generation advisor in the firm will take over. “So the real story is, you've got firms selling to acquirers for a liquidity event for a senior advisor. And the pitch is, ‘Oh, our next gen's good enough to take care of it.’"
“Our belief is that successful advisors who are retired should be matched up with other successful advisors just like them, but earlier in their careers,” said Neil Turner, co-founder and co-CEO of the firm.
The local angle to the strategy is important, Goss said. Large aggregators that try to manage the client relationship from a national home office can run into trouble maintaining the "personal nature" of the advisor-client relationship, he said.
The idea of buying into firms of mid-career advisors in order to give them the means to then go out and acquire others is a unique model, but potentially challenging, said Louis Diamond, president of Diamond Consultants.
“Advisors really get one shot to sell their business, and usually the most reluctant bunch to sell or to sell part of the business are younger advisors because they have the longest runways, and seemingly the most amount of upside,” Diamond said.
“They seemingly are offering an attractive enough carrot to these younger advisors to want to sell their businesses, because most advisors would like to acquire," he said. "It’s just very hard to pull off. It’s really difficult to get in front of lead flow. It’s hard to access the capital. It’s hard to actually pull off the acquisitions." But if a younger advisor wants to grow, and trusts that selling to a "parent company" will put the right opportunities in front of them, "then it’s a potentially elegant solution to achieve that goal.”
Goss founded NewEdge with his father, Jerry Goss, and Turner, under the name Goss Advisors. Goss Advisors became a part of EdgeCo Holdings to anchor the firm's independent division in 2020. NewEdge Advisors was created the following year with the launch of parent company NewEdge Capital Group—a wealth management, advisory services and fintech division created under EdgeCo to serve “elite” advisors and ultra-high-net-worth clients. NewEdge Advisors now has about 110 firms and 275 advisors operating as independents. It has $18.2 billion in assets under management. While LPL is the firm's primary broker/dealer, it also operates its own broker/dealer for specific use cases, such as with ultra-high-net-worth clients.
EdgeCo is backed by private equity firms Parthenon Capital Partners and Waterfall Asset Management, which will finance the new strategy.
This is NewEdge Advisors’ first foray into acquisitions, although the company’s ultra-high-net-worth division, NewEdge Wealth, started as an employee model and has already made several acquisitions in the $20 million to $80 million range, Goss said, and he expects the NewEdge Advisors' deals to be in the same range.
NewEdge has already completed its first transition into the model, Reinke Gray, one of its existing teams led by Brad Reinke and Bob Gray in South Dakota. It’s a 25-year-old firm with $400 million in assets in 22 states.
“When we started talking to them, they had a lot of opportunity,” Goss said. “They're in a region in the country where they know a lot of advisors that are retiring or want to retire, and they knew they would be a great succession opportunity or plan for these retired advisors. But valuations and the complexity of all the deals and everything was a stretch. So we decided, OK, we'll go into partnership together.”
Diamond says the NewEdge Advisors strategy solves another problem for service providers—keeping the business in-house.
“The risk and the downside of these independent models is that the platforms don’t own anything,” Diamond said. “What they own is an override position on a business that can leave anytime. By buying into the businesses, they’re sticky in perpetuity. Their business is also worth more, because now you own the businesses, rather than just being a service provider to these firms.”