Tuck-In Recruiting Intensifies Among Wealth Management Enterprises

James Miller, Contributing Editor & Research Analyst, Wealth Solutions Report

Recruiting Growth Opportunities Among Small And Midsized RIAs Increase For Dual Registrant Platforms, RIAs And Hybrids

Symbiosis. It’s what drives the wealth management space and every connection within it. While the advantages of maintaining mutually beneficial business relationships remain unchanged, perceptions of what each participant brings to the table – the actual value they provide or receive – constantly evolve.

Case in point: In the face of rising capital costs as well as increased market and economic volatility, some of the largest wealth management solutions providers, including national custodians, are reconsidering the value of partnering with smaller to midsized RIA firms that cannot generate the revenue their larger counterparts can.

At a minimum, these RIAs expect the amount of attention and level of customized support they get from the large national custodians to continue to decline.

Meanwhile, for owners of small and midsized firms, the growing complexities – and costs – of running an independent RIA are forcing them to rethink their business models, even as many want to retain their independence, brand and leadership team.

Together, these two scenarios are driving a significant uptick in tuck-in transitions, where an independent RIA winds down its registration and moves to become an independent wealth management business affiliated with a larger corporate RIA.

And the beneficiaries of this trend? Look to midsized dual registrant enterprises, encompassing an RIA and broker-dealer platform, as well as larger RIA and hybrid RIA entities to capture outsized market share with this segment of recruits.

To gain perspective on this shift, and what it means, WSR spoke to four industry leaders on the front lines of this evolution:

  • Paige Swartzendruber, Chief Business Development Officer for Berthel Fisher Companies, a leading wealth management, investment management and insurance solutions provider that supports more than 360 financial professionals overseeing approximately $9.8 billion in AUA through an array of wealth management business models
  • Mark Contey, CMO at LaSalle Street Securities, a family of wealth management firms encompassing an independent broker-dealer and two registered investment adviser (RIA) platforms, collectively supporting more than 300 financial advisors and over $12 billion in total client assets
  • Jason Inglis, Chief Revenue Officer at Sowell Management, a privately held North Little Rock-based RIA firm serving over 100 Investment Advisory Representatives (IARs) as well as RIA firms, encompassing approximately $4.4 billion in AUA
  • Renee Farida, COO at Householder Group, an Arizona-based independent hybrid RIA group supporting a national network of independent financial advisory practices with approximately $2.2 billion in AUM

WSR: What are the most popular reasons for small and midsized RIAs to relinquish their registrations, reorganize their businesses as IARs under a corporate RIA and affiliate with a dual registrant firm?

Paige Swartzendruber, Chief Business Development Officer, Berthel Fisher

Swartzendruber: There are many. Issues like Reg BI implementation increase the challenges and costs associated with the hybrid RIA model. Meanwhile, RIAs often need their own chief compliance officers, which isn’t realistic for some smaller firms.

And stand-alone RIAs are increasingly looking for someone who will allow them to not only maintain their independence but take care of all the compliance and logistical responsibilities that tend to cost so much time, effort and resources. Having an SEC-registered firm carry much of that burden for them is a huge weight off their shoulders.

While some tuck in under our RIA, others see the value in joining our broker-dealer to offer a full range of product lines, including annuities, mutual funds, UITs, certificates of deposit, etc.

All of this is why we support a variety of business models – we want advisors to be able to serve all types of clients.

Of course, transitioning to a new firm can involve challenges. Non-competes are common, and over the years, we’ve had a few OSJs affiliated with other enterprises cause advisors problems after they’ve decided to transfer to Berthel Fisher.

That’s why it can be a good idea to work with a lawyer upfront to avoid that. With the right partner, though, the long-term benefits will far outweigh any short-term difficulties.

WSR: How much of the rise in tuck-in recruiting opportunities is a result of national custodians not wanting to continue to directly support small and midsized RIAs? When small and midsized RIAs are told they must transition to a different platform by national custodians, what should be their top priorities?

Mark Contey, CMO, LaSalle Street Securities

Contey: I think it would be a stretch to suggest that national custodians are discontinuing service to small and midsized RIAs.

However, as business and regulatory costs multiply across the industry, large national custodians have naturally sought to deliver more segmented services to RIA firms based, in part, on size and scale. As a result, the services small to midsized RIAs receive today are very different from prior years, which is a function of economics.

That is encouraging many of them to explore tuck-in transitions, especially with dual registrant enterprises that can offer the right combination of community, service and capabilities.

In terms of top priorities, there are several key considerations. First, consider whether potential partners are right-sized relative to the size of the RIA’s business. Joining a dual registrant platform that is so large that you’re just another number nullifies much of the rationale for pursuing a tuck-in move in the first place.

Second, try to confirm that the enterprise has a community of like-minded advisors. When that is the case, it helps to maximize succession planning or M&A opportunities with others on the platform.

Third, understand the capital structure of the enterprise you’re joining. Specifically, if you affiliate with a PE-owned enterprise, expect ownership to change every three to five years. Sometimes these ownership changes are minimally disruptive. But in other instances, there can be quite a bit of disruption.

By contrast, joining a right-sized enterprise that is not only privately owned, but significantly owned by its financial advisors, can create an alignment of interests across the home office, advisors and end clients.

WSR: What are the biggest concerns that small to midsized RIAs have about relinquishing their registration to become IARs under an RIA? And in your experience, what considerations tend to persuade these RIAs to pursue a tuck-in transition with an independent RIA firm?

Jason Inglis, Chief Revenue Officer, Sowell Management

Inglis: Yes, market and economic headwinds, demographic trends, the growing presence of private equity and consolidation are reshaping the industry. But you know what hasn’t changed? The priorities, values and goals of RIA business owners.

Everyone is different, but there are constants we see time and again in our conversations with owners considering a transition. They cherish their independence. They’re committed to delivering high-quality, conflict-free solutions and support to their clients. They want to land at a place where they feel heard and have a seat at the table when decisions impacting themselves and their clients are being made. They want a culture that resonates with them on a personal level. When they are ready to make a move, these are the things that will drive their decision.

RIA owners are getting squeezed by regulatory, technology and administrative requirements necessitating greater investments of time and resources. Partnering with a firm that assumes many of these burdens is what attracts RIA owners to the tuck-in model. But they are wary of what they may give up in return. We’ve intentionally built a firm that addresses major pain points for small and midsized RIAs without asking them to compromise on what matters most to them.

We’re proud of the community we’ve built. We’ve recruited every asset on our platform – we didn’t buy them. We attract practices because of our platform and our culture. We’ve intentionally steered away from the private equity capital infusions so many of our peers are embracing.

WSR: Are you seeing an uptick in interest among small to midsized RIAs in joining Householder Group as tuck-in recruits, and if so, what do you believe are the key drivers of this trend?

Renee Farida, COO, Householder Group

Farida: The wealth management industry is evolving rapidly, and regulatory changes are bringing added complexity and costs for RIAs. Many small to midsized RIA owners find themselves overwhelmed by administrative tasks and compliance matters, which take them away from serving clients.

We’ve been experiencing a growing interest from financial advisors, especially those managing high net worth clients. These advisors want a smarter way to run their businesses.

We offer a solution that takes on the non-client-facing burdens, allowing advisors to focus on what they do best – serving their clients. Transitioning to our firm means they can maintain their client relationships while gaining access to our turnkey service experience.

From day one of the transition process, our dedicated team assists with marketing, practice management and handles the operational and regulatory aspects. Put simply, we free advisors from daily minutiae so they can unlock their full business growth potential.

But to appeal to these financial advisors, firms need to go even further. For example, we mentor and coach advisors to become regional vice presidents. That way, advisors can accelerate their professional growth and ensure a seamless succession plan for experienced advisors.

The tuck-in recruiting trends we’re seeing are driven by the broader need for relief from growing industry complexity and cost pressures, coupled with the evergreen desire to provide clients with the best possible service. We provide the support, resources and expertise to make that transition smoother, allowing advisors to thrive and build lasting legacies, including for small and midsized RIA owners who are ready to explore new opportunities for future growth.

Resilience Equals Strength

The wealth management landscape will continue to evolve. And the adaptability of financial professionals and firms will keep pace.

As a relationship-driven industry, collaborations, affiliations and partnerships remain the underpinning of ongoing success. The ability to accommodate shifting priorities and situations is an indication of a strong ecosystem – one that can continue to grow, remain relevant and serve clients effectively.

James Miller, Contributing Editor and Research Analyst at Wealth Solutions Report, can be reached at ContributingEd@wealthsolutionsreport.com.

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