The lawsuit, which does not disclose what price EB ultimately offered to buy out Hurley and FN executives, raised some questions about future of the RIA consortium. Earlier this year, EB sold a majority interest in HPM Partners to Don Marron’s Lightyear Capital. HPM has about 1,700 high net worth clients and nearly $9 billion in assets.
Heckenberg has been quoted in other publications saying he and EB want FN to acquire more firms but added that they want to focus on quality over quantity. However, the complaint contends that one criticism EB had of Hurley may have been that he was too selective about acquisitions.
At the same, Hurley has indicated that EB diverted the attention of FN management while restructuring the bank in the post-crisis era in ways that narrowed the number of companies who fit with EB’s capital structure dramatically. FN is hardly the only aggregator to discover that while many RIAs were eager to talk about deals, few ultimately were willing to complete them, particularly during the bull market of the last decade when most firms enjoyed steadily rising revenues. Moreover, FN only sought to do transition-financing deals with firms with a deep next-generation bench, and thus avoided firms where the founding partners were simply looking to cash out.
As a passive, minority investor, EB does not have ownership control over FN portfolio companies. If a senior partner at an FN-affiliated RIA wants to sell shares to a junior partner and finance it herself, she reportedly can. It’s not at all clear whether EB will see to maintain FN’s passive structure or will seek to reconfigure it.
DISCLOSURE: Hurley, who was a frequent contributor to Financial Advisor, did not return repeated phone calls. Howard Milstein, who together with others executives at his New York Private Bank & Trust, was the subject of a cover story in Financial Advisor’s sister publication, Private Wealth.