After a period of relative inactivity following his hybrid advisory’s vendor switch to Cetera Financial Group from LPL Financial earlier this year, Ron Carson, one of the industry's most prominent executives, is promising renewed aggressiveness in the RIA marketplace.
Acquiring firms tops Carson's to-do list.
Ultimately, Carson hopes to be a national RIA and one of the 10 to 15 independent "super-firms" that he believes will dominate the industry within the next decade.
To date, Carson Institutional Alliance has only acquired three firms with combined assets of less than $500 million. But armed with capital from private equity firm Long Ridge Equity Partners, Carson says he expects to have several billion dollars available to buy more — and larger — RIAs beginning this fall.
"We will have plenty of financial resources to be an aggressive buyer," Carson says. "We expect to have a $250 million firm signed in January and plan to be very active in the M&A market next year." Carson declined to name the firm.
Ultimately, Carson hopes to be a national RIA and one of the 10 to 15 independent "super-firms" that he believes will dominate the industry within the next decade.
"These firms have to be the most trusted for financial advice," he says, "and we think Carson can be one of them."
MAJOR TRANSITIONS
Long Ridge bought a 29% stake in Carson's holding company, Carson Group, last year. Carson remains as CEO. The transaction was part of a major industry trend of private equity firms, including KKR, Stone Point Capital and Genstar Capital, investing heavily in the independent advisory space over the past two years.
Carson's M&A deals going forward will be done by Carson Group Partners, the newly rebranded division combining Carson Wealth Management, which has $4.1 billion in AUM according to the firm's most recent Form ADV, and Carson Institutional Alliance.
Carson is also rebranding his Peak Advisor Alliance coaching service, which is currently used by over 1,200 firms, to Carson Group Coaching. Those firms pay a monthly flat fee based on the level of practice management coaching service they receive, Carson says.
DEALS FOR PARTNERS
Expanding the Carson Group's number of partner firms that receive outsourced front, back and middle-office services from Carson is also a priority for the company. Currently, 41 firms in 26 states are partnered with Carson, receiving such support services as billing, compliance, trading and sales and marketing.
Carson calls the service a "turnkey integrated partnership platform" which aims to free up RIAs to spend their time "meeting with the clients we produce."
Partner firms don't pay Carson Group a direct fee, he says. Instead, Carson Group conducts an economic analysis of the partner firm and then receives a percentage of an individual clients' asset management fee, ranging from 10 to 65 basis points, depending on the complexity of the clients' particular funds.
Breakaway brokers will be a primary recruiting target for the partnerships, according to Carson.
"We're going to focus on the wirehouses," he says. "We think there's a lot of opportunity there for what we have to offer."
Existing firms and breakaways will be offered succession planning options. For acquisitions, deal terms include cash up front with notes and negotiated provisions for client and advisor transition.
‘ROCK STAR STATUS’
Can Carson pull off all this off?
"Carson has built his current business based on his rock star status and his understanding of the affluent clientele of the IBD market," says Jeff Spears, the former CEO of platform provider Sanctuary Wealth Services. "He will need to adjust his offering to meet the needs of the breakaway brokers. But I wouldn’t bet against his tenacity."
As for Carson's goal of becoming a super firm, Mark Tibergien, CEO of Pershing Advisor Solutions, which the custodial firm that clears for Cetera, agrees that there will probably be around a dozen national RIAs within the next 10 years, along with 50 to 60 major regional RIAs.
"The execution risk to firms [striving to become one of the top firms] is that they try to do too much with too little," Tibergien says. "For example, many firms who have gone through similar growth efforts get so much pressure from their private equity backers to grow faster that they tend to abandon their disciplined acquisition and recruitment filters."
In the short term, this course of action may help private equity funds "create enough size to liquidate their positions with a healthy return," Tibergien says. Long-term, however, it will be "destructive to a firm's culture, brand, and ultimately profits," he argues.
Carson, Tibergien says, is a "reliable business partner, strategically focused and willing to surround himself with capable talent. He has built a larger-than-average firm on his own in a market one would not normally think of as a financial center. He has created a practice management business to help others grow, which is a good source if opportunities for his new firm."
ODDS OF SUCCESS
However, Tibergien adds, "Whether Carson can persuade enough people who are zealously committed to being independent from a large organization to come under his big tent is another thing."
Industry consultant Tim Welsh notes that Carson has been pursuing a number of businesses for 10 years now. "He's well known, but why hasn't he attracted more RIAs to join him?"
Advisory firms will have to adjust to the unprecedented "availability of information" that clients will have in coming years, Carson says. Consequently, his firm will introduce new tiered levels of services and fees late next year.
A full advisory and planning offering working with human planners will charge clients around 100 basis points, while other clients who don't want to pay as much can choose from a combined human and digital service or an offering that is 100% digital. The fourth service tier will be a retainer fee based on the complexity of the work, Carson says.
Tibergien thinks this approach could work.
"As we look at new generations of financial professionals who are focused on impacting the lives of others more than owning a small independent practice, Carson could be on to something," he concludes. "In other words, I wouldn't bet against him."
