When Haig Ariyan thinks about the ongoing consolidation in the advisory industry, he sees no reason why it should lead to greater uniformity among firms.
Take for example his company
Ariyan, officially the CEO of Arax Investment Partners, said it's significant that he and his partners have chosen to keep the U.S. Capital name in place. That's in large part because he believes it will continue to remain distinct from Arax's other component parts — or "pillars," as he calls them.
Besides U.S. Capital, Ariyan lists the firm's other two main pillars as
"And we're in the early stages," Ariyan said. "We've grown to over $16 billion in just over a year."
Ariyan said much of U.S. Capital's distinct flavor comes from it being a hybrid, meaning it has
Ariyan came to Arax two years ago from Alex. Brown, a Raymond James unit that itself offers both advisory and brokerage services. He also noted that one of the U.S. Capital founders, Pat Mendenhall, was once a manager at UBS and has helped recruit advisory teams from the wirehouses.
"So the DNA of the firm, the type of business that they do, where a majority of it's an advisory business and yet a valuable component of it is a broker-dealer business, was very familiar to me," Ariyan said. "And the quality of the financial advisors was also very, very high. And that's a reflection of a demanding set of high net worth clients."
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Such hybrid firms have come under criticism in recent years for having conflicting business models that perhaps don't always align in a way that serves clients' best interests. But Ariyan and other advocates of hybrids see in them a means of going beyond the restricted array of services available at pure-play advisory firms. Outfits with a brokerage arm can deal in annuities and other commission-based products not sold through fee-only registered investments advisories.
Arax is one of several "roll-up" firms now in the industry that are drawing on capital from private equity to fund their frequent acquisitions. Arax's backer is RedBird Capital Partners, which manages roughly $10 billion in assets.
Ariyan recently sat down with Financial Planning to discuss the prospects for further consolidation in the RIA industry, the value of hybrid firms and more.
This conversation has been lightly edited for clarity and brevity.
Financial Planning: You mentioned that the acquisition of U.S. Capital means you now have in place what you see as the three pillars of Arax. Does this mean there will be no more acquisitions for a while?
Haig Ariyan: By no means is this our last acquisition. We are actively looking to invest in firms that are mature and can be of really any size, as long as they strategically fit. Those three pillars are more a definition of strategy rather than a limitation of opportunity. So we will absolutely be continuing to make investments, very targeted investments.
FP: Will you be looking at different types of firms for possible acquisitions?
HA: Now that we've focused on our three core pillar acquisitions — those being U.S. Capital Wealth, Ashton Thomas Private Wealth and then a third advisory vertical which is growing quickly — we're continuing to look at targeted acquisitions. But our strategy now is focusing on breakaway teams who wish to go independent and join with a team with the opportunity to own equity in that firm, as well as advisory-focused RIAs who are seeking a strategic partner, both for capital and growth.
We're continuing to actively look at opportunities that are being presented to us through relationships that we've had historically, but also from the investment banking community, as well as financial advisors who I've worked with or my team has worked with over the past couple of decades.
FP: Many people think the consolidation of RIAs will continue until the industry is dominated by a number of roll-up firms like yours. Do you see that happening?
HA: I think finding the right partner who's a well-resourced, experienced wealth manager, or wealth management firm, is very valuable to independent firms today for a number of reasons — macroeconomic reasons, as well as regulatory trends. So I think that trend will continue.
I think that the independent wealth space will consolidate into a couple dozen very large wealth management firms, without taking away the independent nature of private business owners who've founded and grown these wealth management firms.
The other trend that I think is starting to gain momentum is the recognition of the value of the hybrid wealth management platform relative to the pure-play model portfolio advisory firm. And this is a recognition that great financial advisors and very worthwhile clients can be found in both the hybrid solutions as well as the pure-play advisors.
FP: With so much consolidation, do you think names like Ashton Thomas and U.S. Capital will be able to maintain distinct traits that continue to distinguish them from rivals? Or will RIAs become more homogenous?
HA: In this subset of firms, there will still be varying degrees of independence, there will be various strategies among these firms. Some will specialize in specific client demographics. Some will have different investment styles and solutions within them, some emphasizing the use of alternatives, some using balance sheets, some being more capital markets oriented. Outwardly, there will also be variation among these independent firms.
Now you've seen that evolution over the last three decades, where the wirehouses have become very fungible and very similar to one another in the solutions that they're providing to FAs, and therefore the solutions they're providing to clients. So I think the independent space will continue or actually will provide more diversity among the solutions and flexibility with which FAs can manage their practice. I don't see them coming to look like one another. I still think there'll be much more variation between them.
FP: How do the firms under the Arax umbrella distinguish themselves?
HA: Our focus and our emphasis is that we are seeking to partner with advisory teams whose expertise is based on their performance record, based on their client satisfaction. And they're supporting demanding clients. A sophisticated, demanding client is really our best customer. Those sophisticated, demanding clients create the best financial advisors. And so bringing those two together into the Arax ecosystem, whether it be at Ashton Thomas or U.S. Capital Wealth on our advisory platform is really our goal.
FP: When you think about your ambitions for Arax, have you set any sort of fixed goals for, say, having a certain number for assets under management?
HA: Having had such early and rapid growth has made it clear to me that having a defining target for AUM or FAs or revenue is really not a practical or appropriate strategy.
We want to continue to grow in an ideal platform to be the destination for very sophisticated and selective financial advisors. With that comes great clients and great solutions because we as a firm are then required to deliver to those FAs. So it's really hard and not even necessary for us to define a quantum to reach in a set period of time.
