Some bigger wealth management outfits, such as Merril Lynch, Charles Schwab Corp. and Vanguard Group, have co-opted the robo-adviser model by offering their own online wealth management platforms. But smaller firms have struggled to compete.
Both of these hurdles come at a time when a large number of baby boomer-generation wealth advisers are reaching retirement age and looking for an exit or partnership to help with succession planning.
At least one of these three issues drive almost every merger or acquisition in the financial advisory space, according to Mark Delfino, chief executive of San Diego wealth management firm HoyleCohen, which acquired Santa Monica’s Libbie Agran Financial Services & Seminars last week for an undisclosed sum.
“The business at its core continues to be under price pressure,” Delfino said. “That’s a trend that you have to fight with a robust value proposition, which comes with a broader footprint of wealth management services.”
How wealth management firms achieve this broader footprint varies.
HoyleCohen, which has $1.7 billion in assets under management after the Libbie Agran deal, can offer some of those services because it is a wholly owned subsidiary of New York’s Focus Financial Partners, a privately held company with more than 40 wealth management firms under its control. Focus Financial acquired HoyleCohen in 2006, although the subsidiary operates independently.
Firms that are rolled up – either directly by Focus Financial or through one of its subsidiaries such as HoyleCohen – can opt for different levels of payout, according to Delfino. Some take a full buyout – usually wealth managers who are retiring – while others keep a percentage of equity. Those that retain equity are paid a cut of the firm’s revenue through a third-party management company.
That’s a different model than Aspiriant, which brings in merger targets as full firm partners. Francais said Aspiriant has 62 partners, which account for more than a third of the firm’s 185 employees. The model is popular and is starting to gain traction, he added, noting the firm has 15 other potential mergers in the works with plans to announce at least one more deal in 2017.