FT 300 analysis: advisers grow through consolidation

Leading investment advisory companies in the US are expanding their teams, joining forces and increasing the range of services they offer their clients, according to an analysis of the FT 300.

A stream of independent-minded advisers had broken away from well-known brokerages in recent years to join smaller registered investment adviser companies or start their own practice. Now, companies trying to attract these so-called “breakaway” advisers are offering technology, financing and other support. 

Consolidation has been prominent among the bigger RIAs, as they attempt to add services and make the most of economies of scale. In the first quarter of 2017 there were a record 44 mergers in the RIA industry, compared with 34 deals in the same period last year, according to DeVoe & Co, a provider of consulting and banking services to advisers. 

The FT 300 list is dotted with companies that have been through consolidations. HighTower, a wealth management company that acquires RIA practices and provides outsourced services to RIAs, has eight practices in this year’s FT 300. Focus Financial Partners, which has acquired large stakes in more than two dozen practices around the US since it was founded in 2006, has seven portfolio companies in the list. In April, Focus sold a 70 per cent stake to two private equity firms, KKR and Stone Point Capital, which valued the wealth manager at $2bn. The high valuation was a sign of investor confidence that the RIA market is set for further growth.

RIAs have also been growing by strategically acquiring or recruiting more advisers. For example, Maryland-based Bronfman EL Rothschild added a team of advisers in Virginia in May. That was the 10th office for the company, which has a presence in six US states.

Expansion has allowed companies to provide more personalised service to clients by adding more advisers with additional specialities. Wealthy investors often want a human touch. While some FT 300 companies offer online services, this is the first FT 300 list since 2014 that does not contain a “robo-adviser”, which use automated investing techniques. 

The average adviser on the list has been in existence for 24 years and manages $2.7bn. A third of the advisers have at least $2bn in assets under management.

The US financial advisory industry is gravitating towards the RIA model of adhering to the “fiduciary” standard, in which advisers are legally obliged to put investors’ interests first — rather than the less onerous obligation on brokers to recommend merely “suitable” investments.

Some 98 per cent of FT 300 companies operate at least some of the time as fiduciaries. On June 9, new rules from the US Department of Labor were introduced that applied the fiduciary standard to anyone advising on retirement plans and individual retirement accounts.

Chicago is home to more FT 300 advisers than any other city with 12, while New York takes second with 11 listed members. This is the first year New York is not the top city, which underscores how easy it is to run a regional or national wealth manager from anywhere in the country by relying on websites, automation and other technology to link offices.

That has helped certain FT 300 members, from Edelman Financial Services — headquartered in Fairfax, Virginia, with 42 offices and 31,000 clients around the US — to the smaller WealthSource Partners, the result of a merger of California- and Colorado-based advisers.

The FT 300 includes advisers from 37 states and Washington DC. California, with 15 per cent of the FT 300 members, once again led all other states by a wide margin. But this year Texas and Illinois were second and third, while New York, which has previously come second, was level with Massachusetts in fourth. 

Just over three quarters of advisers on the list offer wealth management services as a speciality. Individuals with $1m-$10m to invest account for 44 per cent of the assets managed by the FT 300. Clients with more than $10m account for another 22 per cent of assets.