As Financial Advisor was going to press, Boston Private Financial Holdings acquired Banyan Partners, a registered investment advisor headquartered in West Palm Beach, Fla., with a national footprint for $60 million. Banyan, which was profiled in our September 2013 issue, is likely to continue its aggressive approach to growth.
But the strategy of Banyan, which will assume the Boston Private name after the transaction is completed, is different from that of most RIA consolidators, with the possible exception of United Capital. And so what is happening is that two distinctly different models are emerging on a parallel basis.
Banyan and United Capital may be very different firms, but the approaches they are adopting share certain characteristics. Both are seeking to build coast-to-coast firms with a national footprint where prospects can expect a consistent client experience in terms of advice and portfolio construction.
But Banyan places a strong emphasis on asset management while United Capital stresses financial life planning. In that sense, they would appear unlikely to collide.
Banyan’s chief deal maker and chief strategy officer, Scott Dell’Orfano, acknowledges that many RIAs are eager to sell all or part of their firms but have no interest in changing the way they do business. So many of them don’t fit. But since Banyan founder Peter Raimondi started his firm in 2008, he’s done seven acquisitions and, with Boston Private, has now created a $9 billion RIA. It’s a safe bet he’ll be able to build the emerging firm dramatically.
Another variant of the consolidator model can be found at National Financial Partners (NFP) and Focus Financial Partners. While NFP has cast a wide net and acquired benefits providers, RIAs and commission-based estate/insurance planning firms, Focus targets mostly, though not exclusively, RIAs.
Both these firms almost always acquire majority ownership stakes and do not require the principals to alter their business models significantly. This permits sellers to take a lot of chips off the table while maintaining their culture, service model and value proposition.
One criticism of the model is that it removes some incentives for the newly wealthy principals to keep growing the business. Why not put the firm on autopilot and semi-retire on the job? Surely, some advisors have done exactly that. But Focus can also cite affiliates like Westport, Conn.-based LLBH, which has nearly quadrupled in size since Focus invested in it in 2008.
For all these business models, there is another common challenge—divorce. Consolidators have access to better lawyers than RIAs do and can devise all sorts of handcuffs and non-compete agreements to prevent disgruntled partners from leaving.
But in the end, America is still a free country and many advisors who found their way to independence once can do it again. So it will be interesting to see how the consolidation game plays out in the next decade.
Evan Simonoff, Editor-in-Chief
E-mail me at [email protected] with your opinion.
Consolidation Models Emerge
August 2014
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