Fast-Growing RIA Network
Buys Three More

Article published on Jan 31, 2007
By Gregory Shulas

When wealth management industry newcomer Ruediger Adolf launched Focus Financial Partners last year, some wondered whether his passionate talk of fixing today’s “broken” advisory model with his new firm was more style than substance.

Roughly a year later, Adolf has dampened the skepticism by building out a network of independent registered investment advisors (RIAs) that see themselves as an answer to what they see as the product-pushing cultures of thewirehouses.

Focus made a further statement Tuesday by announcing the acquisition of three new firms: Buckingham Family of Financial Services of St. Louis; Sentinel Benefits Group of Wakefield, Mass.; and Quantum Capital Management of Corte Madera, Calif.

The purchase roughly triples its private client assets under management, from $5 billion to nearly $15 billion. It also creates a 380-employee strong national organization with nine member firms that operate in 41 states.

Terms of the transactions were not released. Focus’ announcement comes a day after Merrill Lynch revealed it plans to buy San Francisco-based First Republic Bank in a $1.8 billion acquisition aimed at expanding the brokerage’s wealth management business.

The two deals offer signs that 2007 could be a hot year for mergers and acquisitions in the high-net-worth space, which is still digesting Bank of America’s $3.3 billion purchase of U.S. Trust in November and Bank of New York’s acquisition of Mellon in December (the two prior-mentioned firms have significant wealth management practices).

For Adolf, Focus’ early success is a validation of a core belief: that advisors and clients will prefer to work within his independent fee-based RIA group rather than bureaucratic wirehouses when given the chance. He has been quick to cite research showing that RIAs are already taking marketshare from their large brokerage peers.

“We are in the business of building the leading independent fiduciary firm in the country,” says Adolf, a former American Express executive and McKinsey & Co. partner before becoming Focus' founder and CEO. “It seems that we are growing much faster than we first thought. We are very excited with this announcement that three excellent companies are joining the firm.” Helping finance Focus’ expansion is Adolf’s financial partner, venture capital firm Summit Partners.

If Focus were retroactively included in Barron's 2006 ranking of the top 40 wealth managers, it would now stand as the 32nd largest service provider in terms of assets under management. It currently stands out as the largest RIA network of its kind. Other independent advisory networks in the space include United Capital Financial Advisors and U.S. Fiduciary.

With the Buckingham acquisition, Focus not only gains access to a growing high-net-worth practice, but the firm’s turnkey asset management provider (TAMP), Buckingham Asset Management Advisor Services, which serves 100 clients and has strong traction within the accounting industry.

By joining Adolf’s network, Buckingham’s services and products will get exposure to the organization’s growing membership. Meanwhile, Buckingham professionals will be able to learn best practices from their peers within Focus, says Buckingham Asset Management Advisor Services COO Mont Levy.

“We will continue to expand our platform and our platform offering,” says Levy. “We have found a model with Focus where we can maintain our independence and grow.” (Buckingham’s platform includes passive strategies from Dimensional Fund Advisors and insurance products.)

Overall, Buckingham Family of Financial Services oversees $7.7 billion in assets under management; Sentinel Benefits Group in Boston’s northern suburbs has $2.3 billion in assets under management; and Quantum Capital Management in affluent Marin County, Calif., outside of San Francisco, has $250 million in assets under management.

Other Focus affiliates include HoyleCohen of San Diego, Resnick Investment Advisors of Westport, Conn., Capital Advisory Group of Richmond, Va., Founders Financial Network of Cupertino, Calif., Geller Group of New York, and StrategicPoint Investment Advisors of Providence, R.I.

Scott MacKillop, president of Frontier Asset Management in Sheridan, Wyo., was one of those wealth management professionals who were curious to see the follow-up after Adolf announced his bold plans last year. So far, MacKillop is impressed by what he sees.

“I think he has done a great job,” he says of Adolf. “He has gone where many have talked about going but where few have made the trip. Integrating the companies now will be a challenge.

“[Adolf] has gone about it in a methodical and professional manner. He is putting his money where his mouth is,” MacKillop adds.

Independent firms like Focus have the tailwinds behind them in the race to recruit high-performing advisors, says Jeffrey Dunham, founder of San Diego-based Dunham & Associates Investment Counsel, which operates a network of independent financial advisors as well as an asset management operation.

“The independents clearly have gained shelf space and intellectual capital in the consumer’s eye. The train is not going to stop,” Dunham says.

“The independent broker community was shrugged off by the wirehouses as second-class financial planners, people who just could not make it in the broker channel. That has changed in the past several years. They are now formidable competitors to the wirehouses,” he adds.

Along with emphasizing the rise of the independent advisor movement, Focus’ expansion with Summit Partners’ assistance illustrates the increasing influence of private equity and venture capital firms in the wealth management space.

Ben Phillips of Putnam Lovell NBF estimates that overall holdings of wealth and asset management firms that were in deals triggered by private equity sponsors amounted to $200 billion in assets under management last year. Going forward in 2007, he expects more private money players will be drawn to the high-net-worth advisory space.

“Investment advice is getting a premium in today’s market. It is a faster growth channel for distribution,” explains Phillips, managing director and head of strategic analysis at the New York-based consultancy and investment bank. “Independent broker-dealers and RIAs are pegged to grow much faster and are perceived as objective… and offer fee-based compensation. Private equity has been all over this sector.”