The latest entrant into the consolidation game, Private Wealth Management (PWM), opened its doors in mid-February. Created by former Royal Alliance CEO Mark Goldberg, the New York- and Greenwich, Conn.-based firm has raised $250 million in capital with the objective of acquiring minority stakes in successful wealth management firms.
   Goldberg believes the current metrics being used to set values for advisory firms, like two times revenue and four or five times earnings, fail to reflect these firms' real value. One of PWM's goals is to unlock some of the hidden value.
   PWM plans to engage in private, separate transactions and is being structured as a finance company, so it will have both debt and equity capital. Goldberg believes that wealth management firms represent "the optimum service model for the affluent consumer." Firms will participate in any public or private exit strategies that might occur over the next five to seven years.
   PWM has no intention of operating its own custodian or broker-dealer. "We won't require firms to change their broker-dealer, clearing firm, custodian or technology platform," Goldberg says. Nor is it interested in branding the firms in which it buys stakes. That differentiates it from National Financial Partners, which requires the companies in which it acquires interests to move business to NFP's brokerage.
   Although he maintains PWM is agnostic on the fees versus commission issue, it is seeking to invest in wealth management firms with between $500 million and $3 billion in assets. "We're interested in real firms, not books of business," he says.
   Though he refused to disclose any names, Goldberg says the principals of PWM have over 100 years' experience and have headed some of the major firms in the advisory business over the last few decades. The concerns PWM is negotiating with are expected to have high-quality earnings, a broad array of services, as well as standards of integrity and clean compliance records. They also must be independently owned.
   PWM will only acquire controlling interests in wealth management firms at the principals' request as part of their succession plan. "If you look at most of these wealth management [firms], they have real value built up but they can't access capital to grow," Goldberg says. "Banks look at them as brokers so they can't get any liquidity."
   One of PWM's goals is to enable wealth management firms to realize the valuations and multiples that were previously only available to large institutions. "If you look at this business, assets go from custodian to custodian, broker-dealer to broker-dealer, but the relationship stays between the advisor and the client," Goldberg observes. "That's where the real value is. Over the next decade, there could be a value shift from broker-dealers and custodians to the real owners of the business [relationship]."
   "The market is paying 18 to 24 times earnings for big broker-dealers, amalgam firms that are only proxies for the real relationship. Custodians and investment managers also get rich multiples," he says. "Forget four or five times earnings. If I can get wealth managers two-thirds to three-quarters of the market multiple, that's a big step forward."
   Goldberg is convinced this is possible. "Who is in the control position? Advisors are, and the value that's there should be unlocked," he continues, adding that the private equity community is intrigued. "When private equity see this, they understand it and they believe the capital markets will recognize it as well."
   The private equity firms backing PWM aren't seeking to control wealth management firms. "They want investment in them because they see small businesses providing excellent service with high-quality earnings, margins double or triple broker-dealers' and growth rates at least as high," Goldberg says. For more information, go to