PLANADVISER - July/August 2019 - 26

what a strategic acquirer such as Hub International does.
They tend to lump us all together as 'aggregators.' That's
true in a sense, but it misses the point that the models and
opportunities for growth are very different. "
Strategic Acquisitions
Roughly speaking, there are three main camps of aggregators
that influence retirement adviser practice designs
in a profound way. All exist on a spectrum by no means
precisely defined. First are the " strategic acquirers, " which
buy RIA firms outright and airlift the retirement practice
straight into a large and established financial services or
employee benefits organization.
Recent examples are when insurance brokerage Hub
International Ltd. purchased Sheridan Road, or when
wealth management firm Cerity Partners
LLC acquired Blue Prairie Group.
Ty Parrish is a former Blue Prairie
Group executive and now a partner
and practice leader in the retirement
plan services group at Cerity Partners,
in Tampa, Florida. He notes that, with
95% of the integration complete as
of this July, his firm was able to keep
much of its original identity, while
obtaining the backing of a far larger
staff, new technologies and access to
new markets.
" This is no accident, " Parrish
are investment analysts, client relationship managers or
working in IT [information technology]. "
According to both Morris and Bill Chetney, CEO and
founder of GRP Advisor Alliance in San Diego, RIAs acquired
in this way are being paid " incredible multiples " for their
practice. They say this is a function of the strong U.S.
economy and the deep interest among strategic acquirers in
accessing lucrative new markets.
" The multiples being paid for these well-established practices
are absolutely enormous, " Chetney says. " If you look
back at the early 2000s, when a previous round of significant
RIA consolidation occurred, acquirers were paying out,
on average, roughly five times a firm's earnings. Today, I
commonly hear that firms are getting eight times and even
10 times earnings. In this sense, I think outside money has
become a big driver of the industry's
M&A activity. "
" ... we were able
to basically keep
everything we
do while gaining
so many new
resources. We
says. " We were actually acquired in
part because, while Cerity Partners
did have some retirement assets
already, it wanted to bring onboard a
super-strong institutional process for
growing this business into the future.
As a result, we were able to basically
keep everything we do while gaining so many new resources.
We didn't have to lose our stripes with this new parent. Of
course, it's been a give-and-take, and we have learned much
from Cerity Partners, as well. "
Parrish hastens to note that his firm received acquisition
offers from entities that could not pledge to leave so much
of the Blue Prairie Group culture and process in place, and
his firm was, in this respect, quite selective in deciding to
go with Cerity Partners. Advisers approached by strategic
acquirers will have to think hard about wanting to retain
their firm's identity and processes, Parrish says, adding that
one non-obvious upside of its joining a strategic acquirer
was that lower-level staff now have much more opportunity
for career growth than would have been possible had Blue
Prairie Group remained independent.
" Like other firms in this space, we have a lot of young
and talented people on our staff, " Parrish says. " At some
point, in an independent advisory shop, these people can
top out-how do you keep them excited about staying in
the firm if they have no further room for career growth?
Moving into a big entity such as Cerity Partners has
opened up many new pathways for our team, whether they
didn't have to lose
our stripes with this
new parent. "
RIA Aggregators
The second broad camp of acquirers
that can help RIAs evolve their practices
for the long term are the true
aggregators; CAPTRUST, in Raleigh,
North Carolina, is a recognizable
example. This model resembles the
strategic acquirer approach in that
a larger organization purchases and
integrates the smaller, independent
RIA shop. Yet, when the larger firm
has an existing leadership presence
in the retirement plan industry, M&A
activity is more about building scale
than buying access to a new market.
Rick Shoff, managing director
at CAPTRUST, explains that a big
motivation for his firm to acquire
RIAs is to bring retirement plan and wealth management
businesses together. In fact, according to Shoff, marrying
the two markets is a main driver of the fast pace of M&A
activity today-and will be at the heart of most independent
RIAs' decisions for how to further develop their practice. Do
they want to remain pure retirement advisers? And if yes,
are they confident they can stay profitable doing so? Shoff
says, besides seeing their retirement margins squeezed,
many pure-retirement firms are being asked for wealth
management-type services by their clients, leading them to
ask whether now is the time to break down the traditional
divide between these two sides of the advisory business.
For independent RIAs merging into CAPTRUST or another
aggregator, the benefits and drawbacks are similar to those
in the strategic acquirer model. The acquired firm gains
much more centralized support, as well as potential access
to new markets and service capabilities, while formally
handing over significant control to the home office.
" There are many firms that are really good at the institutional
retirement adviser space and have built great businesses, "
Shoff says. " There are also many firms really good
at the wealth management space and have built really good
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