Under new ownership, Focus Financial is expected to merge around 90 independently-operated subsidiary practices into a handful of its largest firms, according to industry sources.
The strategy, hinted at in a press release last week, would be similar to approaches recently taken by other massive aggregators such as Corient (previously CI Financial) and Osaic (formerly Advisor Group), both of which have moved to consolidate large ecosystems of independent practices into a larger enterprise under a single brand.
In Focus’ case, however, sources tell Wealthmanagement.com the company is likely to roll up all of its loosely affiliated businesses, each operating under their own brand, their own SEC registration and largely responsible for their own operations, into a handful of existing firms, which will likely include Buckingham Strategic Wealth and The Colony Group.
Earlier this year, Focus was taken private in a sale to private equity firm Clayton, Dubilier & Rice—and four personnel announcements last week were reflective of a “strategic evolution as a private company toward a more cohesive organization that seeks a common purpose, higher levels of collaboration, and which operates with greater levels of efficiency for the benefit of its partner firms,” the company said in a statement.
All three Focus founders have exited the firm. Former COO Rajini Kodialam and former head of M&A Lenny Chang stepped down in early August—almost a month before the deal was finalized—and CEO Rudy Adolf left last month.
“They got packages and polite press releases,” said one individual with knowledge of the firm. “But CD&R has clearly decided they’re not part of the future there.”
“Obviously, they’re going to call it retirement," commented another source close to the firm. "But you can fill in the blanks. It was very clear the new owners were putting their foot down in terms of how things are going to be from now on.”
Focus representatives did not return a request for comment. Sources spoke on condition of anonymity out of concern for legal reprisal.
Dan Glaser is now serving as chairman and interim CEO, while Travis Danysh has stepped in to lead M&A after more than seven years in various leadership roles within Focus. Meanwhile, three former principals and managing directors have been elevated to positions leading growth, business development and regional partnerships.
The new owners have communicated their intentions to consolidate internally, and have even begun offering equity buyouts for partner firms, a source added, but the final result of the re-organization remains unclear. Under the buyout offers, principals can receive premium rates for management company equity received when they joined Focus.
“They’re giving out these buyout offers, but folks don’t know what’s going to happen,” they said. “Is it going to be five firms? ... Are they going to sell them or go public? No one knows what the end goal is, but clearly you don’t invest billions of dollars if you don’t have one.”
Yet another source close to the company said they expected to see five of the largest and most acquisitive Focus partner firms left standing, post-consolidation.
“Colony and Buckingham, for sure,” they said. “And SCS [Financial] would make sense because they’re really focused on ultra-high-net-worth.”
Other sources mentioned Connectus Wealth Advisors and Kovitz as likely candidates.
Starting in 2006, Focus' strategy has been to acquire RIAs, share the revenue from those businesses with the firm principals in return for managing those independently operated businesses, and help them make acquisitions of their own, Since then, Focus has acquired some 90 partner firms; those partner firms acquired more than 60 firms over the course of 2020 to 2022.
“It really doesn't make sense to have multiple brands sitting out there,” commented Tim Welsh, founder and CEO of Nexus Strategy. “If you want to have the benefits of synergies and economies of scale, you really need to have one technology platform, one name, one compliance, one marketing engine and so on. Otherwise, you have 42 of the same thing and that's really not efficient.”
Most partner firms will take the buyout and remain with the company, predicted one individual. But, with more than 90 firms under the Focus umbrella, there will inevitably be a few departures.
“These guys are smart enough to know they’re not going to get 100%,” the individual said of CD&R. “But, they can still make a lot of money with a large percentage.”