A growing wealth manager is using its private equity capital to build a “full-service marketplace” of research and funds for financial advisors, its CEO says.
Kestra Financial intends to launch the investment management and research tools this year, with an eye toward outsourced portfolios and creating more options for its 2,500 advisors with ESG data, CEO James Poer said in an interview. The Warburg Pincus-backed firm is also
The PE firm recapitalized Austin, Texas-based Kestra in 2019 under a deal
“The demand for it is growing as advisors increasingly raise the bar on the value they bring to the client and focus more on being wealth managers,” Poer says. “They're seeking more cost-efficient ways to outsource that so they can focus on broader client needs.”
Kestra plans to develop the tools in-house, and the firm has started a national search for an executive to lead the program while assembling a team in the first half of the year, according to Poer. Buoyed by the substantial PE capital, Kestra aims to roll out additional fintech planning capabilities to advisors this year as well, he says.
With firms like LPL Financial investing heavily
A team from Kestra that tapped Goldman a few years ago found itself in the “dangerous middle” when it reached a size of about $500 million in assets under management, she says. The advisors were overwhelmed by the need to hire staff in order to meet the demand while simultaneously trying to keep up with managing all of the investments, Goldman recalls.
“The advantage of what Kestra is doing is that they solved that firm's issues,” Goldman says. “The advantage for that advisory firm is, now the two partner advisor owners can really grow the client base. They can stop saying ‘no’ to people who really want to work with them.”
Outsourced modeling also enables wealth managers to impose more discipline over investment recommendations by advisors, according to IBD recruiter Jon Henschen. Despite notable growth in recent years, only some prospective recruits are familiar with Kestra, he says.
“They're an attractive firm for their wealth management,” Henschen says. “Even though they've had multiple private equity owners, each change of ownership was a non-event for advisors.”
Kestra’s latest influx of PE capital will go toward paying down a balance of $31 million on its revolving credit facility and bolstering its liquidity,
The rating “reflects Kestra's high leverage, low profitability, but strong revenue and EBITDA growth driven by M&A and advisor recruiting,” Massih wrote. “Kestra had drawn on its $75 million revolving credit facility in 2020 allowing it to respond to the challenges presented by the coronavirus pandemic.”
With $682.8 million in combined annual IBD revenue across Kestra and subsidiary H. Beck, the firm is No. 14 on
For the recently completed year, Kestra recruited advisors with production of between $45 million and $50 million, Poer says. He describes the number as remaining steady even as the total assets in motion across the industry fell by a third last year.
Besides the launch of the investment research and management tools, Kestra plans to offer “deeper financial planning” software, more opportunities to work with paraplanners and additional estate planning systems, Poer says.
“The bigger vision of Kestra Holdings all along has really been to build an ecosystem that serves financial advisors and high-net-worth, mass affluent clients,” he says. “It's so much fun to have the resources, capabilities and talent to build a great business.”
