Focus Fincl Boosts Assets Under Mgmt To $15B With 3 Deals

By Scott Stearns
January 30, 2007

NEW YORK (Dow Jones) — Focus Financial Partners LLC has acquired stakes in three wealth-management firms, tripling its assets under management to $15 billion and moving closer to its goal of becoming a national player.

The one-year-old aggregator of financial advisory practices, based in New York, plans to announce Tuesday that it acquired stakes in Buckingham Family of Financial Services, St. Louis, which oversees $7.7 billion of client assets; Sentinel Benefits Group, Wakefield, Mass., with $2.3 billion under management; and Quantum Capital Management, Corte Madera, Calif., with $250 million.

Focus declined to reveal deal terms. It typically acquires 40% to 60% stakes in financial-advisory firms in exchange for cash and an ownership position in Focus. The firms remain largely independent, but through Focus gain access to capital and investments, such as hedge funds, that some couldn't tap on their own.

Ruediger "Rudy" Adolf, a former executive at American Express Co. (AXP) and former partner at consultant McKinsey & Co., founded Focus a year ago with a $35 million private-equity investment from Summit Partners. Focus has acquired stakes in nine independent registered investment advisor, or RIA, firms, extending its reach to 41 U.S. states, and aims to bring 40 to 50 firms under its umbrella. It could go public or sell out to another firm, although it hasn't announced any plans to do so.

On average, financial advisors are in their early to mid 50s and many are thinking about retirement and how they will extract cash from their businesses as they step away. At the same time, the increasing costs of client service, regulatory compliance and technology, along with pressures on advisory fees, are feeding a trend toward consolidation of small firms into larger entities.

Aggregators like Focus Financial and National Financial Partners Corp. (NFP), regional banks, broker-dealers, independent advisors, and even accounting firms developing wealth-management capabilities are all looking for acquisitions in the highly fragmented independent RIA industry.

Principals of firms that join Focus Financial continue to run their businesses. Focus typically offers an upfront payment when it acquires a stake, then sets earnout provisions that can boost the value of the deal depending on how well a firm performs over the three- and six-year periods after the acquisition.

National Financial Partners, which launched in 1999 with a $125 million private-equity investment from Apollo Management LP, has a business model that is similar to Focus Financial's, although it is weighted more toward life-insurance and corporate-benefits firms than fee- based financial planning and investment-advisory practices. NFP buys 100% of the equity and typically 50% of the net income of a firm, with ongoing incentives for growth. It usually pays five times the net income it is purchasing in cash and stock. It currently has about 170 firms and more than $6 billion under management through its registered investment advisor unit.

Scott Stearns, Dow Jones Newswires; 201-938-5392; scott.stearns@dowjones.com