HighTower high drama: Firm nearing $6B deal, second exec leaving?

There's high drama at HighTower Advisors.

The Chicago-based RIA is close to wrapping up a deal with Wealth Trust, an RIA aggregator, that may bring HighTower over $6 billion in assets. In addition, the firm may have lost its second senior executive in the past few weeks, Chief Development Officer Michael Parker.

Sources with knowledge of the matter have confirmed negotiations between HighTower and Wealth Trust with Financial Planning, and news of an impending deal was first reported by The Wall Street Journal. Wealth Trust, based in Houston, has 12 wealth management firms in 10 states and the deal would potentially transfer most of the firms to HighTower. HighTower declined requests for comment.

Wealth Trust, originally based in Nashville and founded by Rusty Benton in 1997, was one of the earliest RIA aggregators, but the company struggled after the financial crisis of 2008. Benton resigned in 2010 and Lee Equity Partners, a private equity firm which also owns a stake in Edelman Financial, bought Wealth Trust in 2012 and has invested heavily in the business.

GAME CHANGER
The deal would be a game changer for HighTower, which only began buying mid-sized RIA firms two years ago, The firm has acquired five firms to date, though none with AUM approaching $1 billion.

If completed, the transaction would vault HighTower into the upper ranks of RIA acquirers, in the company of heavyweights such as AMG Wealth Partners, Focus Financial Partners, United Capital, as well as fast-growing RIAs backed by private capital including Savant, Mercer Advisors, Mariner Wealth Advisors and Wealth Enhancement Group.

Earlier this week, one of the industry's largest RIAs, Edelman Financial, announced that it, too, is jumping into the M&A arena, backed by capital from private equity firm Hellman & Freidman. Edelman plans to "quickly" start buying advisory firms with assets up to $5 billion in its existing markets, according to Rene Chaze, the firm's CFO who is spearheading the initiative.

MANAGEMENT MYSTERY
HighTower may also be seeing upheaval in its senior management ranks.

Word that Parker has stepped away from his executive position to become a consultant swept through the industry. Advisor Hub reported that the move did take place, but the report did not have confirmation from HighTower.

A 23-year industry veteran, Parker is a nearly seven-year veteran of the firm. He was promoted to chief development officer in 2014, heading the firm's eight-person national sales team, managing a "multi-million dollar annual budget," according to his LinkedIn page, and reporting directly to Elliot Weissbluth, HighTower’s CEO.

The RIA declined to comment on Parker's status, or confirm or deny that he is no longer chief development officer. Parker is still identified as holding the position on HighTower's web site and he emailed that he was "still with HighTower and doing well."

When asked if he was still an executive or a consultant Parker did not reply.

Last month Mike Papedis, a seven-year veteran of the firm who was a managing director heading up RIA acquisitions, left to become a consultant.

NEW BUSINESS LINE
After pivoting away from its original business model of recruiting high-powered wirehouse brokers to join the firm as equity partners, HighTower began an outsourcing business in 2013, selling back-office and middle-office service on its platform.

In 2015, following another hot industry trend, HighTower launched a third business line, becoming a serial acquirer of independent advisory firms.

"If I buy an RIA, 100% of the earnings lands on my income statement right away," Weissbluth explained in an interview with Financial Planning last month. "[Bringing on a wirehouse team], I have to wait until the accounts transfer, which may take a year. I have to subsidize their staff until the clients show up and help them with capitalization. I could lose money for a year.

"If I buy an RIA they are already fully capitalized, paying their staff and have the earnings to support it, "Weissbluth continued. "From a simple economic perspective, it's a much more attractive proposition."