Is there room for another advisor aggregator?
Veteran advisor Joe Heider and broker-dealer Royal Alliance are betting that there is, at least for a firm with a regional approach and targeted demographic.
Heider's new firm, Cirrus Wealth Management, is hoping to convince advisors who are over 50, working within 150 miles of Cleveland and looking for a succession plan to sign on for upfront cash, a future earn-out and a promise to be matched up with a younger advisor to take over when they retire.
To be sure, Heider faces stiff competition. National aggregators like Focus Financial and United Capital, as well as a host of other RIA powerhouses like Mariner Wealth Advisors and Carson Wealth Management Group are offering similar deals to the wave of aging baby boomers considering retirement.
"Yes, there are thousands of advisors out there who are in that position," Heider acknowledges. "But I'm not looking for thousands of advisors. I don't need that many to be successful."
SUCCESSION DILEMMA
Why should advisors with a practice generating at least $500,000 in annual recurring revenues throw in with a start-up instead of an established player?
It all depends on how highly they view a solid succession plan, Heider says. And he's able to use his personal experience as a guide.
"I'm one of them," the 60-year old advisor notes. "I fit that category. I've been in their shoes." Heider became convinced he could successfully fold-in advisors looking for a succession plan solution after going through his own internal debate.
"I have a good sense of what advisors who are 50-plus are going through because I had the debate in my head," he explains. "I asked myself if I wanted to glide through, coast and retire. I thought about it, and I realized I didn't want to do it.
Older advisors who feel similarly but also want to put a succession plan in place are offered a pay-out based on a percentage of gross dealer compensation and deferred compensation based on a buy-out over an agreed-upon number of years, tied to their total revenue when they decide to retire.
THE DEAL OFFER
Heider, a chartered financial consultant and an attorney, began his career at a regional Ohio-based broker dealer and in 1992 co-founded the wealth management division of Dawson Co., which was bought by Milwaukee-based Rehmann in 2010.
He stayed on as Rehmann's regional managing principal for Ohio, while also continuing to build his practice targeting physicians and owners of privately-held companies and specializing in designing customized retirement plans.
While Rehmann, which has over 800 employees including substantial accounting and investigation divisions, is "an excellent firm," according to Heider, the cultural fit just wasn't there: the company was "closer to a bank model versus one that supported rain-making advisors," he says.
Rehmann and Heider negotiated a buy-out agreement last year that resulted in Heider bringing over around 100 clients and approximately $300 million in assets under advisement. With financing from Royal Alliance, a bank line of credit and his own funds, Heider launched Cirrus this month with one other advisor and staff of four in suburban Cleveland.
Advisors will use Royal Alliance as their broker-dealer and platform service provider, Rehmann as their RIA, and Cirrus will help with services such as back-office administration, customized quarterly reports and client meeting agendas.
Cirrus will also match younger advisors with the established practices, offering the younger advisors an opportunity to grow their business, additional back office support and a potential equity stake in Cirrus.
Younger advisors may also be offered cash up front, depending on the size of their practice and their transition needs.
Heider hopes to use Cirrus' small size to its advantage: "We can be more nimble and structure deals around an advisors' individual needs."
GOALS AND CHALLENGES
Despite being small, Cirrus' goals are driven by revenue growth, which Heider aims to double this year increase eight to ten-fold within five years.
As for his chances of success, "competition will be tough and hopefully Cirrus’ partnership with Royal Alliance will help drive prospect flow," says John Furey, principal and founder of Phoenix-based Advisor Growth Strategies. "This is in Royal’s best interests as they keep the assets."
Heider's biggest challenge, Furey continues, "will be the matchmaking element – specifically, what’s in it for the junior advisor. If the deal is less cash and more earn-out, I am very skeptical about the probability for success. These types of deals only work when there is a large cash up- front element."
Heider says he's very much up for the challenge: "I'm still excited about the business, and I think I can grow this new business with the opportunities that are out there," he says. "I also still derive a great deal of satisfaction from working with clients and helping them achieve their financial goals and dreams."
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