HighTower’s pending acquisition of $6.4 billion in WealthTrust’s RIA assets from Lee Equity partners positions the Chicago-based consolidator of breakaway brokers as a serious player in the RIA consolidator space. For WealthTrust, the transaction represents the end of a two-decade long venture to consolidate RIA firms that left some participants disappointed.

Sources said that HighTower reportedly paid about $70 million for most of WealthTrust’s RIA operations and that, if the transaction enables it to slash costs of $3 million or $4 million and raise cash flow from the $5 million area to $9 million, the deal could be a winner for HighTower.

It remains to be seen whether the deal marks a shift in focus away from brokerages towards the RIA universe on HighTower’s part. Even before the Department of Labor proposed the fiduciary rule for retirement accounts, private equity firms reportedly had soured on the brokerage business due to slow growth and rising technology and compliance costs. And as any valuation expert knows, an RIA typically commands a higher multiple than a hybrid broker-RIA, partly because the former has a higher percentage of recurring revenues.

Few people understand this better than HighTower co-chairman David Pottruck, who served as COO and co-CEO of Charles Schwab during the 1990s when the RIA business exploded. Industry observers say the WealthTrust transaction had Pottruck’s footprints all over it.

Officials at HighTower have yet to divulge which WealthTrust they are buying and which ones they are leaving with the seller, Lee Equity. Sources said that HighTower will definitely buy WealthTrust’s three most profitable RIA firms -- Cleveland-based Fairport Asset Management; Kanawha Capital Management of Richmond, Va.; and Delta Asset Management of Memphis.

Fairport reportedly generates one-third of the group’s cash flow, while the other two firms account for almost another third. Some of the other WealthTrust firms reportedly are either marginally profitable or experiencing slow growth. Part of the problem is that some former owners who sold their equity no longer have incentives to grow. For HighTower, a major challenge could be re-energizing certain firms.

Motivating advisors who have cashed out is a challenge for most consolidators. Many, like WealthTrust, acquire majority interests in the firms they invest in. However, HighTower and others are finding ways to make sure their most productive firms share in the economics of the parent.

Lee Equity’s assets include many of the brokerage firms acquired by Sanders Morris Mundy, which was led for two decades by former Prudential Securities CEO George Ball. It is believed that Lee Equity is retaining the brokerage operations.

Lee Equity bought those assets, which included Edelman Financial Services, in 2013 for about $300 million. In 2015, Lee made a killing when they sold a majority interest in Edelman to Hellman Friedman valuing the firm at more than $600 million. Executives at Lee reportedly had ideas of merging Edelman’s firm with the others, but contract language and cultural issues rendered that option unfeasible. Edelman founder Ric Edelman declined comment.

In 1997 -- a decade before Focus Financial, United Capital, Fiduciary Network, Dynasty Partners, HighTower and others were launched -- Rush Benton conceived the idea of a national network of RIA firms. But by last year, three of the 12 firms acquired by WealthTrust had managed to buy themselves back, which was no easy feat. No one knows how many others wish they had the resources to do likewise.

Leading RIA firms were enjoying brisk growth at the turn of the millennium, so convincing them to sell meant paying major premiums. In a typical transaction, WealthTrust initially would purchase majority stakes in the target firms and then increase its position at a later date, often buying the entire entity. WealthTrust reportedly had a complex formula via which the individual firms could receive equity in the event of an IPO, but that big liquidity event never happened.

Considered a visionary and an eminently decent person by colleagues, Benton was forced to raise significant capital; some said more than $100 million. Still, in November 2007, WealthTrust purchased two RIA firms, Fairport Asset Management in Cleveland, and Axiom Asset Management in Radnor, Pa. That brought its network to 11 RIA firms with a total of $8.6 billion in assets according to a company press release.

In 2008, Benton would initiate his final acquisition taking a majority interest in Foldes Financial Management in Miami. Then the financial crisis came and funds dried up. Until then, everything was going well for management and the affiliated firms.

WealthTrust, which had been partially financed by Morgan Keegan and Region’s Bank, ended up turning to Falcon Investments, a distressed debt investor. After Falcon took control of WealthTrust, advisors from the different firms were called to Atlanta for a meeting. Executives at the private equity firm told the advisors they had shopped the firm and discovered the value was in the individual RIA firms, not home office execs or the platform itself.

That in itself is hardly an earth-shattering revelation. Brazilian private equity firm 3G has teamed with Warren Buffett to extract billions in value by buying consumer staples companies like Heinz and Kraft and firing thousands of senior “managers.”

For advisors like Foldes, it wasn’t the cruise he signed up for. “Rush was the visionary I had hitched my star to as it related to building WealthTrust into a national network of RIAs and I felt uncomfortable with the changes,” he recalls.

Falcon had every right to expect a return on its investment, he acknowledges. “I respected Falcon and understand what private equity companies do, namely make money for its investors, but it wasn’t what I had signed onto,” Foldes says.

Even before Falcon stepped in, another WealthTrust firm, Kingfisher Capital in Charlotte, N.C., had negotiated its exit. In 2009, Kingfisher was able to buy back its independence at a price its chief investment officer, Alex Miles, told Financial Advisor was fair but “no steal.”

In 2012, Foldes followed in Kingfisher’s footsteps and bought back his own firm. Because WealthTrust ran out of money before it could buy all his stock, Foldes only had to buy back a bare majority of his firm. Two years later in 2014, he merged it into Evensky & Katz/Foldes Financial.

Then in 2015, Lee Equity reportedly sold Wilbanks, Smith & Thomas of Richmond, Va., back to their founders, making it the third of the 12 firms the original WealthTrust acquired to repurchase its business. One can only wonder how many other RIAs at firms that sold to WealthTrust wish they had the wherewithal to buy back their firms.

Back in 2009 Miles of Kingfisher argued that both the private-equity investors and the advisors in these transactions are focused on different numbers, both of which are wrong. The acquirers in the private equity world frequently are overly concerned with monetizing their investments quickly, viewing an IPO as the logical exit strategy. Advisors, on the other hand, are fixated on the upfront payment. All too often, they overlook what the terms and legal requirements of the contracts they are signing mean for their firms and clients.

None of the current consolidators has managed to do an IPO. Sources say Focus has circulated preliminary S-1 documents and might always try again if the markets remain hot. But yesterday, Focus announced that it done another round of financing with KKR and Stone Point. The tranaction reportedly values the big consolidator at $2 billion but an IPO is still elusive.

Edelman became public through its merger with Sanders Morris Mundy and went private with Lee Equity in 2013 after finding that its stock traded by appointment.

What’s clear is that while the private market for RIA firms is more active than ever, the public IPO market is focused on the next Facebook or Snap, not a bunch of advisors in their 50s and 60s. That’s not likely to change.