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Competition, Consolidation Heats Up Among Wealth Advisors

It’s turning out to be a battle extraordinaire in Los Angeles as advisers to the super rich are consolidating their industry.

At least a dozen Los Angeles firms classified as independent registered investment advisers are slugging it out to vie for top player status. Collectively, according to managers of firms interviewed for this story, they’re managing more than $100 billion in assets.  

Registered investment advisers, or RIAs in investment-speak, are registered with the Securities and Exchange Commission. The coveted SEC-backing gives these firms the credibility to provide personalized financial advice to their well-heeled clients, many of whom have complex financial needs.

The reasons behind the consolidation are diverse, from an aging workforce to the desire to figure out a succession plan for new wealth management partners entering the upper ranks of these firms. Private equity behemoths are also seeking stable and handsome profit streams from these conservatively run businesses.

“The RIA business is really good business,” Karen Barr, president and chief executive of Washington, D.C.-based trade group Investment Adviser Association, said. “The value of fiduciary advice has never been stronger.”

Despite the pandemic, the number of RIAs nationwide continues to grow at a steady pace, reaching a record high of nearly 13,500 in 2020, an increase of nearly 4% from the previous year. Meanwhile, assets under management in the United States grew in 2020 to a record $97.2 trillion, up 16% from the year before.

Pent-up demand
The highly fragmented RIA industry has caught the acquisitive eyes of the private equity sector and others who want to cobble together partnerships. It’s a trend Barr has seen in recent years but that has accelerated since the pandemic due to pent-up demand for solid returns.
Private equity firms can realize such returns by acquiring RIA firms. Deals were moving along up until the pandemic, and then everything came to a grinding halt. As the pandemic has eased, private equity began running up the valuations as they worked to scale.

Torrance-based EP Wealth Advisors, which is led by Patrick Goshtigian, chief executive and president, who took the helm of the RIA firm in May 2018, has helped put together 16 acquisitions during his tenure.
The firm now has $13 billion in assets under management and is close to becoming a national firm in size, according to Goshtigian.

EP has been strategic in its growth trajectory, significantly enhancing its footprint in California and surrounding states, and has openly discussed plans to continue its growth as it marches toward becoming a national player.

Since taking a minority investment from Wealth Partners Capital Group of West Palm Beach, Fla., in July 2017, EP Wealth has expanded in California, Washington, Colorado, Arizona, Illinois, Texas and Utah.  

It has plenty of big competitors in Los Angeles, where about half of its 210 employees work. The closest in size, however, is Sawtelle-based Aspirant, which has about $14 billion in assets under management.

Fast-paced consolidation
Rob Francais, Aspiriant chief executive, said the pace of consolidation is happening faster than he’s ever seen.
Francais recalls a meeting with seven other CEOs in an industry group that had regularly gathered before pandemic restrictions were imposed to discuss industry trends. The last meeting took place over a year ago on a Zoom video conference call.

“We’d meet to discuss how we were tackling this problem and that problem,” Francais said. “We always shared information — like a new portfolio accounting system, for instance.

“Roll back the clock a year ago, one out of eight were owned externally, and today seven out of eight are owned externally. These are firms that I’ve known for two decades, and in a 12-month period it all changed for that group,” he said. “The ones who are the most active RIAs in this space are the ones who are owned by private equity because the valuations were built up, and they’re the ones with the capital looking to consolidate the industry.”

Sawtelle-based private equity firm Leonard Green & Partners has become an active player lately. In April, Leonard Green bought a “significant” stake in Mariner Wealth Advisors, a Kansas City, Kan.-based wealth advisory firm with more than $40 billion in assets under advisement and one of the largest RIAs in the United States.

Mariner’s 25th acquisition came in July when the Leonard Green-backed firm bought Century City-based AdvicePeriod, an RIA managing $4.5 billion. 

In recent months, Minneapolis-based Wealth Enhancement Group has made a foray into Los Angeles. In July, the $38 billion-in-asset Wealth Enhancement bought Brentwood-based Oakwood Capital Management, a 14-person firm managing more than $1 billion in assets.

Looking for stability 
Other players in town also have felt the effects of the consolidation trend in the independent RIA space.
In May 2020, Westwood-based Evoke Wealth merged with local RIA firm Aris Wealth Management, giving the combined wealth manager more than $22.5 billion in assets.

Evoke was founded in May 2019 by David Hou and Mark Sear, both of whom have been leaders in the wealth management industry for more than three decades.  

“I think private equity is finally realizing that … the RIA business is a pretty stable business. That’s the main catalyst,” Hou said of the consolidation.
In May, Century City-based Lido Advisors, with $10 billion in assets under management and in a dozen U.S. cities, formed a strategic partnership with Boston-based private equity firm Charlesbank Capital Partners.

“Charlesbank’s financial support in Lido Advisors is helping accelerate our consolidation plans,” said Lido Chief Executive Jason Ozur. “Charlesbank, Lido Advisors and other private equity investors we have met with are attracted to the RIA space because it is highly fragmented and ripe for consolidation.”

RIA firms also have high client retention rates coupled with recurring revenue, according to Ozur. And they’re looking ahead to make the most of it.

“Lido Advisors is keenly aware of how smaller firms are being impacted,” said Ozur of the consolidation trend. “We see this as a huge trend over the next five to 10 years, and we’re poised to take advantage of it.”

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