When Beacon Pointe Advisors began its merger and acquisition growth strategy in 2011, firm President Matthew Cooper was confident the strategy would work. Just not right away.
“With any new business venture you don’t have 100 percent certainty when there’s risk involved,” Cooper said.
The RIA consolidator, which had more than $4 billion in client assets at the time, started off slowly, only acquiring 8 businesses between 2011 and 2019. Then in 2023 a shift had become apparent. Echelon Partners reported that Beacon Pointe had taken the fifth slot on its list of the most active acquirers of 2023 for buyin eight firms with more than $2 billion in assets.
The shift was the entrance of private capital. First, middle-market private equity firm Abry Partners took a minority interest in 2020 to strengthen the firm’s M&A. Then, in 2021, Beacon Pointe took on a new capital partner, KKR to ramp up its inorganic growth. Since then, the firm’s assets have risen from $20 billion to $33 billion, as of April.
But private capital alone is not the only thing contributing to the RIA consolidator’s growth. Cooper told Financial Advisor magazine that retention strategies and placing importance on emotions have played critical roles in where it is today.
Rising competition in the market from other consolidators like Focus Financial and Hightower have pushed Beacon Pointe to evolve its retention strategies. In the 2010s, it didn’t have any outside money to build out more features. However, it did manage to hire Bruce Meyer to establish an Arizona firm known as Beacon Pointe Wealth Advisors that would house a turnkey asset management program and be the entity where cashless equity swaps occurred.
The names looked exactly the same to the market, said Cooper. The only thing different was the ownership until Abry Partners helped the two merge in 2020.
“The two separate entities worked very well, but there were some differences in opinion on which P&L should be paying for which investments in the business.Today, we’re all in the same equity—all of the partners, including KKR,” Cooper said.
William Diehl, who just moved his $2 billion team over from UBS last October, told Financial Advisor that having one share-class of equity where all owners have the same rights is one of the features that stood out to him along with the capital partner being a minority investor.
Joining partners are offered between 25% and 60% equity depending on the amount of assets that transition to the platform. On average, joiners receive about 30%. The remaining amount is in cash from either Beacon Pointe’s balance sheet or its credit facilities.
The RIA consolidator targets standalone firms with $300 million to $3 billion in client assets and a minimum of $20 million of acquired run-rate EBITDA per year. Within that crop of firms, Beacon Pointe looks for teams that not only want to grow but have the capacity to do so. According to Cooper, Beacon Pointe needs to grow 15% to 20% per annum for the sake of its current and next generation shareholders.
Andy Reinhardt, a partner based in Arizona, said the base for Beacon Pointe’s growth was the referrals it received from Schwab, Fidelity and TD Ameritrade. In fact, one of the reasons his firm was acquired from Compass Bank (now PNC Bank) in 2012 was because of its large network in Arizona and experience working with the Schwab advisor referral network. The other reason was that headquarters was looking for a team younger than Meyer to fill out the Scottsdale office.
But the economics of M&A do not concern Cooper as much as emotions do. To him, the economics will work itself out but emotions need some TLC. He told Financial Advisor that emotion is where do you feel the most comfortable to thrive and help your team thrive, and that’s something he doesn’t want to overlook.
Some of the internal ways Beacon Pointe attempts to address the emotional part of its growth strategy is with multiple committees and social events for people to convene in and offer feedback on how to evolve the firm. It also tries to centralize back office responsibilities like compliance, human resources, technology and marketing, and integration to minimize as much disruption to client relationships as they possibly can. Under Chief Operating Officer Karisa Diephouse is an integration team that will run parallel IT systems for a few quarters until new teams are comfortable switching over to the firm’s technology stack that includes Salesforce and Tamarac.
The external ways start during the prospecting for new clients. When Reinhardt and his team were examining Beacon Pointe as a potential acquirer about 12 years ago, they were frequently visited by the consolidator’s CEO, Shannon Eusey, and Cooper. These days, Reinhardt is one of a handful of partners that interview new prospects. Diehl and his partner Russell Crow, for instance, said they visited Beacon Pointe’s offices multiple times throughout the course of a year and a half before signing on last year.
Finding the right prospects includes screening out the wrong ones. Reinhardt said that Cooper frequently iterates, “No Jerks.” For Reinhardt that means weeding out advisors who are perceived to be in the business for the wrong reasons. Cooper said separately that he looks at whether firms have lost employees or are “riddled with lawsuits” from clients or disgruntled partners.
Beacon Pointe expects to grow three times its size over the next three years. The main reason Cooper gave for Beacon Pointe’s need to grow is “it’s getting more competitive” and the firm wants to meet client demand for services at a price that matches or is less than what rivals offer, and alleviate the pressure of smaller RIAs competing for talent.