No trend has dominated the RIA business over the last decade to the degree consolidation has. As private equity has discovered how lucrative financial advice can be and how sticky advisors’ relationships with clients are, private capital has flooded the industry.

It was inevitable that a cottage industry like the RIA profession with tens of thousands of firms would experience a wave of consolidation. As professionals have aged, it’s understandable they would seek retirement security for themselves and a smooth transition-succession plan for both clients and employees.

Today, rarely a week goes by without several announcements of RIA mergers or acquisitions. But if selling a firm that one has spent most of their adult life in is financially rewarding, it hasn’t always been a path to personal fulfillment.

All advisors who launched their own firms were entrepreneurs, and more than a few found the jolt of reporting to a large organization difficult. Moreover, those who sold their firms in a prior decade to banks, many of which once were enamored with the RIA space, found their parent company was seriously distracted by the financial crisis. So were private equity buyers with their love of leverage.

In this story, Financial Advisor profiles four RIA firms whose principals sold their firms and, for various reasons, bought them back. Along the way, they learned a variety of lessons, not the least of which was the value of sharing equity.

Judy Shine

Shine Investment Advisory Services

Early in 2008, Judy Shine was talking to a professional colleague who had recently sold a majority interest in his firm to Phoenix-based Western Alliance Bancorp. The colleague had nothing but kudos for the acquirer.

A midsize RIA with $350 million in assets in the Denver suburbs, Shine Investment Advisory has always punched above its weight. Having held casual talks with other acquirers, Shine decided to get serious with Western Alliance. By early 2008, a transaction was completed, with the bank buying 80% of the firm and Shine retaining 20%.

In retrospect, Shine concedes she wasn’t particularly sophisticated. “When you only do something once, you are not very good at it,” she says.

After a pleasant start, things changed quickly following the crash of both the real estate and equity markets in 2008’s second half. Like virtually every other bank in America, Western Alliance was preoccupied with its real estate loan portfolio.

Within a few years, the bank proposed merging Shine’s firm with that of the advisor who had gotten her interested in selling to Western Alliance in the first place. Given that her firm was far more profitable but slightly smaller in assets at $350 million, placing a value on each of the two firms was vexing.

What she had going for her was a put option to sell her remaining 20% stake for $3 million. At one point, the bank proposed she buy out its majority stake for $12 million. She refused.

After a failed attempt to replace her as CEO, the bank put Shine’s firm on the market. A bank in Denver tentatively offered $10 million. A few potential buyers showed up, including United Capital CEO Joe Duran, who asked what was going on.

Despite the bank’s reassurance that Shine’s firm posed no troubles, Duran quickly concluded otherwise—that if Shine left, most of her clients would have followed. Out of her loyalty to those clients, Shine says she would have stayed under fair and reasonable circumstances. But Duran walked.

Then things began to fall into place for Shine. By the fall of 2012, she was able to buy back her firm for an undisclosed price, somewhat more than her $3 million put option but for far less than what the Denver bank asked for.

When it was over, she realized she had led a charmed life. It took a few years “to recover and feel the world was a good place,” she says.

In the meantime, she has been adding partners and reducing her own equity stake as she lays the ground for succession. By the end of 2020, she will own 45% of the firm.

Bob Wacker

Wacker Wealth Partners

Bob Wacker wasn’t actively looking to sell his firm in 2007, but a series of events led him to make that decision.

He wanted to get started on succession planning, he was facing some health issues and he was approached with an offer from Pacific Capital Bancorp. The San Luis Obispo, Calif.-based RIA, with about $465 million in assets under management at the time, took the bank up on its offer and the deal closed on New Year’s Day 2008.

“It accomplished the things I wanted to do in terms of security for my family,” Wacker says of the deal. “Fortunately, it was a cash deal with an earn-out, which was not unusual,” he says, explaining that when he sold the firm, the stock was at $17.50 a share. The bank ended up selling Wacker’s former firm a year and a half later for 20 cents a share to a private equity firm.

Things had gotten off to a good start with the bank. “In our case, they never changed the name or how we did business,” Wacker says, explaining that the firm was allowed to continue on with its fee-only structure. “That was a big part of our culture,” he says.

“They didn’t mess with us and they didn’t know who our clients were,” he says. “We were fortunate except for having it on the front pages of the paper … it’s a small town … but besides that, people soon forgot that we were part of the bank.”

But the financial crisis was in full swing, and Pacific Capital Bancorp immediately ran into trouble, Wacker says. The bank had home loans throughout California, Nevada and other areas, and the crisis was not forgiving.

In 2012, the bank was taken over by a private equity firm that turned around in about 18 months and sold it to Union Bank of California, which is owned by Mitsubishi UFJ Financial Group, one of the world’s largest bank holding companies. Wacker says Mitsubishi bank had its own wealth management arm.

“They could have tried to integrate us, but they realized that would have ruined us because we do things so differently, so they decided to spin us off once they purchased the whole bank’s assets,” he says.

Wacker noted that several buyers had their eyes set on the firm and they all wanted to know if he would stay on. “I wouldn’t agree to that. This was in 2013 and I was 64 so I said no.” He says he wasn’t sure what the offers entailed but that didn’t matter because as it turns out, Wacker had a better plan. He and the firm’s seven other advisors made an offer to repurchase the firm, which Mitsubishi accepted. The name was changed to Wacker Wealth Partners, which at the time had $661 million in AUM.

“So we have eight shareholders at different levels. I am now 70, so I offer shares and people buy them. I have less than I had seven years ago and some people have more than they had seven years ago,” he says.

Wacker would not disclose how much was spent on the deal but says, “Even though we were more profitable at the time, it was a little less than a third of what they had paid me for it.

“They were very good to work with in that they didn’t want to ruin us, and as long as they got something for it, it wasn’t a big deal to them one way or the other,” he adds.

For the most part, Wacker says he never had a contentious relationship with the bank. But he had friends and knew of others who did. “I don’t know the financial aspects of how they did but I know the relationship aspects were a lot worse,” he says. “Ours was a lovefest by comparison.”

He says his firm continues to remain independent, and the hope is to keep it that way. “And that’s a decision you have to make that might cost you because now it’s almost déjà vu. There are a lot of people looking to buy firms like ours now that would pay a lot more than we are transferring shares at,” he says.

Today, he doesn’t look back on the sale as a good or bad thing. At the end of August, Wacker Wealth had $925 million in AUM. “It turned out the way it turned out and that was just fine,” he says. “It had some challenges to it—after 20 plus years calling your own shots and to not have complete control over that. … But not the challenges I know some of my friends had.”

Wacker says even though the bank that bought his firm went through three different ownerships, he never had an adversarial relationship with it. “We are very blessed with the way it turned out,” he says. “I would have been fine if I had been just ridden off into the sunset, but I am happy that I am still able to be here and do business the way it should be done.”

Greg Sullivan And Jim Bruyette

Sullivan, Bruyette, Speros & Blayney LLC

All RIA marriages and divorces should go as smoothly as the 13-year relationship between Bank of Montreal and Sullivan Bruyette Speros & Blayney (SBSB).

When Bank of Montreal bought SBSB in 2003, the McLean, Va.-based RIA saw an opportunity to access the bank’s vast resources and acquire other firms. But that wasn’t all. “They wanted to import our method of doing business leading with financial planning,” recalls Jim Bruyette, co-CEO of SBSB. “They wanted to use that process to train their advisors.”

Yet it soon became evident that the Bank of Montreal had bigger challenges. Moreover, the executives who were so enamored with SBSB’s financial planning approach to wealth management left the bank after several years.

If visions of a unique partnership began to fade away, the relationship between the two concerns remained friendly. “They were very ethical and great people,” Bruyette says.

When the financial crisis struck, little changed. “We were thrilled [our owner was a] Canadian bank,” Bruyette says. After all, Canadian banks came through the financial crisis in much better shape than their U.S. counterparts.

Sometime around 2014, co-CEO Greg Sullivan and Bruyette started to realize they’d like to keep working at the firm for another 10 years or more. Moreover, if they did so, they decided they’d rather do it as owners and expand equity ownership to more advisors than they had when SBSB was a much smaller firm with $800 million in assets in 2003.

Negotiations with the bank went on for over a year. While SBSB barely contributed a penny a share to the Canadian bank’s earnings, they had a fiduciary responsibility to shareholders to exact a reasonable price. SBSB understood this, but for obvious reasons it also knew the less it paid the sooner it could retire the debt it assumed to finance the buyback. With $2.6 billion in assets under management in early 2016, SBSB was no longer a small firm.

By all accounts, the repurchase of SBSB has been a huge success, despite the fact the firm had to take on significant debt. It now has $4 billion in assets, 66 employees and 17 owners—with plans to grow that number in 2020 and beyond.

“It created a lot of energy for a second line of management,” Bruyette says.

“When you own yourself, you are more willing to tackle the really hard issues.”

Having more shareholders also provided more capital, creating a more stable capital structure. Furthermore, expanded ownership not only helped the firm grow, it also enabled SBSB to attract two senior-level executives in the last year.

Mike Kabarec

Carson Wealth Management

For 37 years, Mike Kabarec has been assisting investors with managing their finances. And while he may want to slow down some, he has no plans of stepping aside from the business he created. In fact, he talks enthusiastically about expanding and adding financial advisors.

 It’s clear from a conversation with Kabarec, a senior wealth advisor at Carson Wealth Palatine in Chicago, that he loves what he does and seems to cherish these days at work, more so than in the past, and understandably so. But in the years after the financial crisis, Kabarec, 70, was traveling weekly to Minnesota to attend to a sour deal after selling his firm in 2008.

These days, however, he is back to taking care of clients and getting in a round of golf as often as he can.

“We have come from the dark of night to the morning of sunshine,” says the soft-spoken Kabarec, referring to a period of turbulence with the sale of his former firm, Kabarec Financial Advisors Ltd., in October 2008 to the principals of Minnetonka, Minn.-based Mesa Holdings Inc. and Mesa Financial Advisors Inc.

Kabarec’s relationship with his firm’s parent consolidator quickly became contentious. He was the sole shareholder in Kabarec Financial when he sold it. He says he perceived the period leading up to the sale to be a sincere courtship. He sold 100% of the stock in his firm in the fall of 2008 and got roughly $2 million for the deal. “We did our due diligence. Everything was hunky-dory … we concluded it was going to be a good fit,” Kabarec says, explaining that the agreement called for him and his partners to continue running the firm while Mesa took over all the back-end operations.

But the deal soon began to fall apart. Mesa had fallen into financial difficulty, and the first payment was missed. “We took back all our operations,” he recalls.

Even bigger problems arose when Mesa failed, since his stock was cross-collateralized several times over and people had legitimate claims against it. It was the fall of 2008 and even highly rated giant companies like General Electric were finding it impossible to access the debt markets.

It took six years of wrangling, but Kabarec finally signed off in federal court in Minneapolis in 2014 to get his business back.

“Between legal fees, payments to several individuals and plenty of red wine, it cost me $1 million to get the business back,” Kabarec says, noting that his only payment was $350,000. The rest went to legal fees and other expenses.

After this “annihilation,” he was sure he was never going to sell again. “I would die at my desk after that bitter experience,” he says.

It didn’t take long before things were set in motion to unload the firm once again. But this time, Kabarec was alert to all the red flags. He wanted to sell the business soon because he had clients he didn’t want to leave in the lurch, he says.

He noted that people in his firm were interested in purchasing it, and there was a handshake agreement, but the technological infrastructure posed a barrier.

Enter Carson Wealth, one of the largest wealth management firms in the country, based in Omaha, Neb., and founded by Ron Carson. “We came across Carson and started a courtship,” Kabarec remembers. “We called them at the same time they called us.”

“We did our due diligence again, checked once, checked twice. I wished I had done that the first time,” Kabarec says. “I looked under the rug, I looked under the bed for skeletons and I found nothing.”

Kabarec did not reveal how much he received for a 25% equity interest in his firm. He would only say the valuation is similar to that of the Mesa deal. “With Carson it was simple. You do this … I pay you that. We shook hands and had a glass of wine,” Kabarec says.

He praises Carson for “being very open and up-front with everything.” The high-profile Carson is “kind of an evangelist preaching the gospel of old-fashioned financial planning.”

Kabarec changed the firm’s name to Carson Management. It’s the only Carson-branded advisory firm in Chicago, he says. The remaining 75% of the stock is split three ways with Kabarec and his office partners.

Today, the firm has 250 clients and $235 million in AUM, up from $170 million in October 2008 and $160 million in June 2017. Kabarec says that with the Carson Corporation, his partners are looking to acquire some other practices.

The experience from the botched Mesa deal has made Kabarec very cautious, to say the least. “Boy have I learned some lessons,” he notes. “The message here is ‘Be careful and look under the rock, not at the rock.’”