high-profile expansion of a US-registered investment advisory firm
to Europe, Focus Financial Partners, the largest independent wealth
management network in the country, is to buy a UK-based wealth
adviser.
The arrival in the UK of Focus Financial, with its finely marketed
approach to fiduciary-based financial planning, marks a real
turning point in the global registered investment advisory (RIA)
market, and could open the door to a new wave of cross-border
investment. Focus is a partnership of independent wealth management
firms with $26 billion of client assets. The addition of the UK’s
Greystone Financial Services brings some 5,000 high net worth
individuals and companies with more than $1.6 billion in assets
under advisement.
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“Greystone is one of the most successful entrepreneurial wealth
management firms we have encountered – anywhere,” said Rudy Adolf,
Focus’s founder and CEO. “Greystone represents the future model of
successful wealth management firms, combining strong financial
expertise with a comprehensive financial planning model. We are
truly pleased to welcome them to Focus. We are intent on building a
unique international wealth management organisation by bringing the
most talented, high-performing independent financial advisers, like
Greystone, together.”
Adolf told PBI that Focus views the UK as a natural extension of
its successful US operation. “We are the largest fiduciary wealth
management firm in the US, and our vision is to branch out to other
attractive markets, and the UK is extremely strong, as it is a true
growth market and offers us an real opportunity to expand,” he
said. “Focus has a very distinct business model, and it’s a model
that is very decentralised and protects the culture of our partner
firms, while also bringing them advantages they wouldn’t have
otherwise.”
Going global
For Focus, the deal is the first step in creating the first global
network of independent wealth management firms. The idea is to
bring together leading firms such as Greystone, giving them access
to value-added resources, scope and expertise. Focus serves
essentially as the holding company, helping its partners grow and
ensuring the continuation of their business legacy, benefiting
principals, employees and clients. Greystone retains its
entrepreneurial business model, operational control, culture and
identity; this is the cornerstone for every acquisition of Focus
Financial Partners, Adolf said.
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By GlobalData“We see this as a great opportunity to further strengthen the
Greystone Financial Services and Wealth Management offering, and
there is a considerable attraction to being the access point to
Europe,” said Paul Heap, managing director of Greystone. “The
quality and professionalism of the Focus firms, and the resources
and backing offered by Focus will allow us to expand our
recruitment and acquisition programmes.”
Focus is a relative newcomer to the RIA market, as it was founded
only in 2006 with four firms and $3.5 billion in client assets. The
firm quickly grew to 15 partner firms. Majority-owned by its
partners, today the organisation has more than 600 employees and
more than 18,000 clients.
A new model
Focus believes that its model is strongest where individual client
assets total up to $15 million, and it can offer a range of tax
planning, real estate planning and trust services as well as
mainstream asset management. The firm is willing to bet that its
independent status can deliver better services than tied firms or
private banks eager to push in-house products. “The UK market has
never seen a model like ours,” Adolf said.
The transaction is one of the latest in the wealth management
advisory space, which has drawn strong interest from private equity
firms over the last two years. In November, Chicago private equity
firm GTCR Golder Rauner committed $100 million as part of a $200
million capital raise for PrivateBancorp, a Chicago wealth advisory
services company. Other deals in the sector include Birmingham,
Michigan-based money manager Munder Capital Management’s
acquisition by Crestview Partners of New York; the recapitalisation
of Nashville-based WealthTrust by Circle Peak Capital, also a New
York private equity firm; and New York-based MB Investment
Partners’ purchase of Boston’s Ironwood Capital Management.
While Focus has the wherewithal to handle such an overseas deal, it
may be too soon to predict a wave of cross-border acquisitions.
Chip Roame, managing principal of Tiburon Strategic Advisors, a
Tiburon, California-based market research and strategy-consulting
firm for financial institutions and investment managers, says he is
doubtful that the market will see many RIA acquisitions overseas.
“Focus has the scale to pull off a deal like that, and they are
unusual in that regard,” he said. “It’s not the situation that most
US RIAs are in, and they have enough business to chase with the US,
so I don’t see this as a major trend.”
For Focus, it’s the first step in what the firm hopes is an
international network of RIA partnerships to mirror its US network,
created through 14 acquisitions since January 2006. “We believe
that the fiduciary model, where client interests come first, is a
superior one, and has enabled some of the most talented wealth
managers to bring their collective expertise together to build
Focus into an unrivalled national wealth,” Adolf said.
RIA buying spree slows
International expansion may look even better in the years ahead,
however, as the subprime-driven credit mess has stymied what once
was an active market for RIA firms among US banks. Banks – active
purchasers of RIA firms last year – no longer may have the capital
or the lending capacity to continue the RIA buying spree. That’s a
real blow for RIA firms, as banks were paying top dollar for the
firms just a year ago. Smaller advisers – those with about $300
million in client assets – are commonly valued at five to seven
times their earnings. Firms with $500 million to $1 billion in
assets are valued at six to nine times earnings.
Banks acquired 14 RIA firms with assets of $100 million or more in
2007, according to figures from the strategic client group at
Schwab Institutional in San Francisco. Last year a record 81 RIAs
were acquired, up from the previous record of 57 deals in 2006,
according to analysts. If prices of RIA firms drop, their returns
may become more attractive to private-equity firms, which generally
expect returns on equity of 30 percent to 35 percent, premiums that
banks with devalued stock prices simply can’t afford.
