Advisor Group is losing more than 80 registered representatives but gaining a stake in a massive firm's expansion as it seeks to reach $50 billion in client assets in the next five years.
Signature Estate & Investment Advisors, a registered investment advisor that currently manages more than $16 billion in assets across its direct client base and turnkey strategies for other practices, is getting its first private equity infusion and launching its own brokerage firm, the firm
The parties didn't disclose the terms or equity levels of the deal, which is expected to close Sept. 30. Holmes said Signature's current stakeholders are keeping "a meaningful ownership share" in the firm while extending equity to more of its 160 employees than before.
The rare move by a departing team to create equity ties with its former brokerage and Advisor Group's parent, Reverence, comes as
"We'll have an extremely attractive platform for those wanting to move in the RIA direction from the [independent broker-dealer] world or those RIAs who see that our platform is excellent for the high net worth investors," Holmes said in an interview. After the close of the deal, the firm's brand will remain the same, though, with he and other members of the management team maintaining their same roles and Charles Schwab and Fidelity Institutional continuing to be its exclusive custodians. That part was one of many "prerequisites" for the deal, he added.
Custodians, investors and any brokerage affiliations loom large for every one of the new RIAs opening in record numbers. Naples, Florida-based Moran Wealth Management officially cut its ribbons on Aug. 22 after CEO Tom Moran left Wells Fargo Advisors Financial Network following nearly 20 years with it and Wells Fargo Advisors. Moran's family-run firm, which has about $4 billion in client assets, picked Pershing as its custodian as it seeks to add more advisors to its current group of 10 and pitch its own investment models to outside practices as well.
Moran and his wife Sandi own 90% of the new firm and three of their children work there. The 17 employees who have been with the practice for at least five years each received some equity in the new RIA, and Moran said he feels "very fortunate that I don't need additional capital" from any new investors to finance the future enlargement of the firm. Launching the RIA makes it easier to pick up more advisors and drive more investments in its models, Moran said.
"What I learned is, you have to have the right team," he said, praising Pershing for its help with the transition. "To move a $4 billion firm to an RIA requires a tremendous amount of attention to detail."
Representatives for Wells Fargo declined to comment on Moran's departure.
Many other RIAs have welcomed outside investors in recent years, however. Publicly traded Focus Financial Partners has owned Denver-based Transform Wealth for about a half dozen years — a span in which Transform has reached its current size of $2.5 billion in client assets and 33 advisors and employees on the strength of two big incoming recruits and three other "tuck-in" deals financed by Focus, according to CEO Nathan Kubik. Its most recent one in
"If it was just my brother and I buying companies right now, it would certainly change how we do them," Kubik said. Wider economic jitters are prompting only slight adjustments to deal structures, not wiping out agreements to sell entirely, he said. "Now you've got so much equity behind this industry that it's not as big of a factor," Kubik added. "The volatility could make some people nervous, but this is a long-term game."
Advisor Group and its 75% owner, Reverence, are eyeing the longer term as the Phoenix-based wealth manager makes its first strategic RIA investment under a push to further its reach among advisory practices. Advisor Group has already made two major deals this year to acquire midsize wealth managers
Citing the acquisitions and Advisor Group's "strong growth in client assets, revenue, and more favorable shift toward advisory fees and away from less predictable commission revenue," Moody's Investors Service Analyst Gabriel Hack maintained the firm's "B3" corporate debt rating and upgraded its outlook to "positive" from "stable."
For Signature, its multifaceted deal reflects only the next step in what the practice started when it launched its "hybrid" RIA in 1997, according to Holmes. Hybrid RIAs
When Holmes' first opened the RIA in 1997 while affiliated with the former John Hancock-owned Signator Investors, the brokerage business constituted 97% of its revenue, he said. Advisor Group
Now, Holmes' firm gets 97% of its business from advisory services, including some $4 billion in assets through the turnkey investment strategies previously available only to Royal Alliance advisors. For its current ranks of 81 registered reps including 39 financial advisors across a dozen offices and any future recruits or roll-ups, the new brokerage is "a key part of this whole situation," he said. Holmes will be the sole owner of a brokerage firm created for and by an RIA.
"We are simply continuing as leaders in this movement toward RIAs," Holmes said. "Now we have a platform that allows advisors to do what's best for their clients. They might choose 100% RIA, they might choose a hybrid setting. We'll now be a leader in this approach of the option to do both."
