Think of it as solving the eternal succession-planning problem, only at the corporate level. “That’s what we all want,” says Veritable founder Michael Stolper, 56. “This will only be successful if Veritable can go beyond my career and beyond the careers of all the senior people here.”
Affiliated purchased a controlling stake this week in the boutique, fee-only firm that has $10 billion in AUM. The price was not disclosed, but it was based on annual profits of $20 million and revenues of $35 million, according to an individual familiar with the deal.
Suburban Philadelphia-based Veritable, which focuses on clients with $25 million to more than $1 billion in assets, ranked third in Financial Planning’s 2012 ranking of the 50 largest RIA firms.
The deal is the first of its kind in Affiliated’s newly created division, AMG Wealth Partners, according to division President John Copeland. Copeland joined AMG last year after leaving Morgan Stanley, where he oversaw a group serving high-net-worth and ultra-high-net-worth clients. Copeland says he and his team had conversations with more than 100 firms before targeting Veritable for its first deal.
“There continues to be a migration of individual wealthy clients away from large banks, insurance companies and B-Ds toward independent wealth advisory firms,” Copeland says. “Many of those firms founded in the last 10 to 20 years are facing succession issues. We think we can help.”
With $338 billion in AUM, Boston-based Affiliated has said it would like to grow the assets in its new division to $50 billion. In the past, Stolper has said he envisions growth of that magnitude for his firm alone. With 2,642 discretionary accounts as of June 30, Stolper has far fewer clients than, for example, the No. 1-ranked fee-only firm GenSpring Family Offices, with $10.9 billion in total assets spread among 10,505 discretionary accounts.
Stolper said he and his team chose Affiliated because they were persuaded the larger company is sincere in its promise to let them continue to run the company autonomously. Veritable has experience working with a larger partner. In 1994, Stolper sold the company – then known as Stolper & Co. – to PNC bank, then purchased it back in a management buyout in 2004. During those years, when Veritable grew to $5.9 billion in AUM from $1.5 billion, Stolper says, Veritable retained its independence and relied on the larger company only when it sought support.
“At its core, Veritable is a due diligence shop,” Stolper says. “We are pretty skeptical people down here. It was crucial to us that [Affiliated] prove to us that they are an unintrusive but supportive partner. Everyone we spoke to says that’s exactly what they are.”
Stolper emphasized that, unlike with the PNC deal, in which the bank owned his company outright, Affiliated purchased a controlling stake. He says he’s retaining a large share in the company and that, as a result of the deal, half of the firm’s partners now own more equity, not less.
Nearly a decade ago, Stolper says, he went to his managers and said they needed to figure out how to create a strong succession plan. “We can’t wait until we are in our mid-60s to figure out how we will move equity around because it will be too late by then,” he recalls telling his partners. “Maybe I could get away with [retiring], but I need to work for other reasons. And we have a lot of 40-somethings here who still have the most important part of their careers ahead of them.”
One scenario that initially appealed to him was creating a cooperative organization in which the Veritable team would own the company in partnership with clients. Clients frequently had expressed an interest in investing in the company over the years.
Ultimately, however, he concluded that was no more than a pipe dream.
“The biggest problem is the potential for conflict. How can I be advising people about their money and asking them to invest in my business?” he asks. “I couldn’t get around that point. I don’t imagine the SEC would love it either.”
Since the announcement, Stolper says he’s heard only positive feedback from his clients. He suspects the deal has laid to rest some of their unvoiced concerns about Veritable’s long-term prospects.