Advisor Recruiting: More Large Firms Taking Equity Stakes In Smaller Firms

Advisory Firm Execs, Consultants Weigh The Pros And Cons of Larger Firms Taking Equity Stakes In Smaller Firms

One of the standout trends that have emerged over the course of the past year has been the growing number of large enterprises acquiring equity stakes – in some cases, a minority stake, in others a majority stake – in the RIAs and other independent wealth management businesses that they’re also serving.

There are, however, various pros and cons for companies considering such transactions, according to the industry executives who commented for this article.

A Trend Towards Equity

In January, Cetera Financial Group made a minority investment in Wilde Wealth Management, which had over $3.4 billion in assets under administration as of May. Cetera also took a minority stake in CCR Wealth Management in 2022, which had $2.5 billion in assets under management at the time.

Also in January, Hightower Advisors announced a strategic investment in Capital Management Group of New York, with $3.3 billion in assets at the time, the fifth wealth manager formerly affiliated with an IBD in which the firm has both made a strategic investment and onboarded the firm to its network.

In 2022, private equity firm Reverence Capital Partners and one of its portfolio companies, Advisor Group (now Osaic) invested into RIA Signature Estate and Investment Advisors to strengthen its growth and services.

‘Misaligned’ Visions

Neil Turner, Co-CEO, NewEdge Advisors
Neil Turner, Co-CEO, NewEdge Advisors

From NewEdge Advisors’ perspective, “benefits of mergers arise only if both the large enterprise and the advisor believe they can achieve greater success together than independently,” said Neil Turner, Co-CEO of NewEdge. “These mergers must be mutually beneficial, and when they are, numerous advantages can emerge.”

However, he said: “Problems arise if the long-term vision and objectives of the enterprise and the advisor practice are misaligned. Selling equity is often a permanent decision, and if interests diverge, it becomes nearly impossible to unwind.”

Another important thing that firms need to keep in mind, he said, is that “selling an equity stake in any business is almost always a permanent transaction, with the buyer requiring necessary protections.”

He explained: “In wealth management, these protections typically include enforceable non-competes and non-solicits. Sellers must consider the buyer’s needs and conduct thorough due diligence to avoid seller’s remorse.”

He also warned advisors to be very careful before selling equity in their businesses. “Advisors should not sell equity solely to cover increased business costs,” he said.

“Instead, they should explore ways to run their business more profitably. A firm struggling with costs is not an attractive investment for buyers. However, when an enterprise has a profitable practice in their ecosystem, the home office must provide capital solutions or risk losing the advisor.”

He added: “Equity transactions, when designed with intention, align the success of the firm with the success of the advisor. This ensures everyone is working towards the same goals and allows both parties to reap the rewards of their combined success.”

The One Thing Enterprises Can Promise

Jeff Nash, Co-Founder & CEO, Bridgemark Strategies

Also weighing in on the pros and cons of the trend was Jeff Nash, CEO and Co-Founder of Bridgemark Strategies. From the enterprise’s perspective, “acquiring even a minority portion of the business ties the firms to them and makes it harder to leave,” he said.

On the other hand, Nash said: “The cons for a seller may depend on the deal structure. Often the promises of future liquidity may not be as robust as promised. Also importantly, when selling a minority portion, a seller needs to understand what elements of control may be lost. There are many scenarios where selling a minority to an enterprise may have broad benefits, but sellers need to be aware of enterprises only promising one thing … a future transaction at a higher price. If that future transaction never occurs as promised, the seller will have lost a lot more than gained.”

Clear Path’ For Succession Planning

Jesse Kurrasch, Chief Operating Officer of The AmeriFlex Group
Jesse Kurrasch, Chief Operating Officer of The AmeriFlex Group

“There are several areas” that Jesse Kurrasch, Chief Operating Officer of The AmeriFlex Group, said he saw as “positives, including the chance to participate in growth opportunities and align objectives which lead to increased value/multiples to the enterprise.”

It can also “deliver better economics across the enterprise and enhance the retention of advisors,” he said.

He also sees it as a solution to an ongoing problem among advisors, saying it “provides a clear path for succession planning opportunities.” But, he said: “For the enterprise, it can increase risk due to the greater complexities in structure and operations.”

Evolving Under One Umbrella

Lou Camacho, President, Stratos Wealth Enterprises
Lou Camacho, President, Stratos Wealth Enterprises

“Enterprises can accomplish several strategic objectives by acquiring equity stakes in the firms they serve,” according to Lou Camacho, President of Stratos Wealth Enterprises, the acquisition division of Stratos Wealth Holdings.

He explained: “The investment can deepen the relationship and enhance scale through technology, process, asset management and other platform services that may not be maximized in a purely affiliated model. For the enterprise, it increases the stability of advisor practices on the platform, enhances advisor retention and provides an additional channel for earnings growth.”

He added: “Enterprises that can develop an ecosystem that allows advisors to evolve under one umbrella will have a competitive advantage over organizations that fail to create a path for growth, liquidity and ultimately advisor succession.”

Jeff Berman, Contributing Editor & Reporter at Wealth Solutions Report, can be reached at

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