Fast Lane

National Financial Partners is a network of independent financial advisors as broad as it is deep. More than 175 owned firms and more than 320 member firms specialize in the areas that affluent clients need to protect and growth their wealth-life insurance and wealth transfer, corporate and executive benefits, financial planning and investment advisory services. Jessica M. Bibliowicz, the chairman and CEO, speaks with Hannah Shaw Grove, executive editor of PW, about her company's short but super-charged existence and their long-term strategies to build profitable and meaningful partnerships with the best financial professionals in the business.

HSG: What is the philosophy of National Financial Partners?

JMB: NFP was founded by Apollo Management in 1998, but I think the culture and the history behind the NFP model really predated that by quite a bit. In the '70s and '80s, distribution and manufacturing in the life insurance industry began to separate. Life insurance advisors serving the high-net-worth market began to leave the career insurance companies to start their own businesses. Because they were no longer associated with a particular life insurance company and its products, advisors were able to evaluate and choose products from the range of carriers that best suited their clients. Essentially, this was the first generation of open architecture, which was a very different approach for that time.

But as carriers began consolidation, the big challenge these independent advisors faced was that negotiating with the large insurance companies became tougher. Without the scale, retail firms became focused on how they could associate with each other more to add to their extensive knowledge of wealth planning and insurance products.

One of the original firms to do something about this emerging trend was The Partners Group in Texas, now known as PartnersFinancial. It began as a producer group in 1987 with the goal of bringing successful advisors together to create collective purchasing power with the carriers, share intellectual capital, and invest together in technology and marketing. In a nutshell, PartnersFinancial helped independent advisors become a viable choice for high-net-worth individuals by securing access to the products and tools needed to serve such a sophisticated client.

HSG: How did that influence the genesis of NFP?

JMB: NFP's goal was to take that idea of collective buying power and shared intellectual capital one step further by expanding beyond the strict scope of insurance and estate planning to support advisors in complementary industries. Acquiring PartnersFinancial was a logical first step for NFP because we felt it offered a permanent, strategic structure that the other firms could plug in to for services and support, leading to organic growth. NFP's role would be to bring scale with the carriers and the capital infusion that would support growth via acquisition.

Apollo Management recognized this opportunity in the independent advisor market and in 1999 they funded NFP with $125 million of capital to start the acquisition process.

HSG: And the evolution of NFP?

JMB: From the beginning, we knew we needed to stay focused on earnings and keep the management teams at the firms we acquired motivated. And we wanted to branch out quickly and make sure that we diversified our revenue. We looked for firms to complement our strong life insurance practices, particularly corporate and executive benefits practices in the small and mid-size markets.
There is quite a bit of solid cross-over between the high-net-worth market and the entrepreneurial business owner, which allowed us to become involved in broader-based wealth transfer, estate planning and business succession solutions. We also wanted a stake in a third area that is important to affluent clients-the management of their assets-so we began to acquire investment advisors serving that space.

HSG: So, coming out of the gate NFP was broadly diversified?

JMB: NFP was not originally conceived as a diversified story, but we quickly adopted it as a strategy. With so much happening in the high-net-worth space that needed attention, it was a logical next step for us. We also wanted to take NFP public and we needed to think about growth and revenue stability. Life insurance is a profitable business, but it can be volatile. The benefits business and the asset management business have more recurring revenue. We have diversification and non correlation of our firms' earnings. It's a mix that is incredibly appealing to clients and investors.

HSG: So what value does NFP provide for a firm and its clients?

JMB: NFP is designed to support our firms from every angle, which creates better service for their clients. For instance, a firm talking to a business client about health and welfare, 401(k) and their voluntary business can tie in to our corporate benefits resources for servicing and administration, get competitive pricing for health care offerings, deliver education on HSAs and so forth. But as part of NFP, they can also bring our annual report to the table, showing that they are part of a public company with a strong reputation, backed by a balance sheet, with an established strategy and longevity. Our firms not only have access to the products and tools they need, they also have a national organization behind them.

HSG: What makes an NFP firm or firms the right choice for an ultra-affluent client?

JMB: We have all the benefits of a large corporation, but it's really boutique providers that deal with clients. Our firms have deep knowledge in their respective areas of specialty and there's been a long-term focus on the super-rich. There's real operating knowledge and experience dealing with the complex issues of wealth-whether they are regulatory, structural, or personal issues. And the boutique mentality means they are used to partnering with other professionals to design and deliver a customized solution. It's the type of service model the truly wealthy have been relying on for years that can't be delivered by a single provider at the same level of quality.

HSG: What makes for a great partnership between NFP and a firm?

JMB: As we built NFP through acquisitions, we really learned how to do due diligence on acquisition targets and understand, not only what we want in a firm, but what a firm wants from NFP. There's no doubt the NFP transaction offers a wonderful alignment from the advisor's perspective given that they become shareholders as a result, but when an advisor asks why the acquisition will be good for clients, I know we've targeted the right firm. Each firm is a subsidiary of a public company, and as part of that are required to adhere to our strict compliance and ethics and Sarbanes-Oxley regulations, but they are also still in control of running their individual businesses because they have proven they can do that better than a corporate entity. The NFP structure offers a great balance in that way.

JMB: We'd always planned to go public and had been working toward that goal from the beginning, but the climate in the early 2000s wasn't great for that type of activity. We were ready, but the markets definitely weren't so we were delayed a few times. When we finally hit the road in September of 2003, the timing was good. Mutual funds, which are natural IPO investors, were seeing positive cash flows. Investors were very engaged with the NFP story, the separation of manufacturing from distribution, the open architecture, and the client service focus. It wasn't a common business model and there was no comparable company in existence, so we faced a steep education curve but, overall, NFP was very well received.

HSG: What changed when you went public?

JMB: Because there was more information about NFP in the marketplace for firms to access, it became an easier story for advisors to tell their clients.

HSG: Why has it been so successful?

JMB: Our client orientation. We made structural decisions about the business based on what was right for the end client from the very beginning. We watched the big financial services businesses split themselves up into different companies to eliminate conflicts of interest. We never had the conflicts to begin with.

The other choice we made from the very beginning was designing a structure that kept the advisors engaged in running their business. The advisors ARE their business, and are responsible for the ultimate success of their business. We never lost the entrepreneur-to-entrepreneur connection, we just gave the firms more to work with when serving their clients.

HSG: What does the corporate infrastructure look like? Do you have centralized functions like strategy, product development, marketing that the firms can use?

JMB: The New York office is our corporate headquarters and is where the acquisition, firm management and corporate activities are housed, including finance, legal, compliance and marketing. Our distribution facility is in Austin, Texas. The tools and services that support revenue generation and growth are based there, along with NFP Securities, Inc., which is our wholly owned broker-dealer, the registered investment advisor, NFP Insurance Services, Inc., which is our insurance carrier management company, and NFP Benefits Partners, our benefits-focused membership organization. Overall, our Austin facility is focused on helping our firms deliver solutions to clients. We have invested in the technology that firms can use to help streamline or grow their businesses as well.

HSG: Do firms avail themselves of the infrastructure support differently?