Carson Group worth $1 billion after Bain Capital buys 29% stake

Yet another prominent advisory firm has sold a chunk of itself to a powerhouse private equity investor, underscoring the riches of the financial advice industry.

Bain Capital, the investment firm co-founded by ultra-wealthy Utah Republican senator Mitt Romney, acquired a 29% stake in Carson Group, a fast-growing RIA cum broker-dealer headquartered in Omaha, Nebraska, with $17 billion in client assets.

Bain bought the stake from Long Ridge Equity Partners, another private equity firm, which paid $35 million for a minority stake in Carson in 2016. That sum suggests that at the time, Carson Group was worth nearly $121 million.

Carson Group

Wednesday’s transaction with Boston-based Bain values quasi-independent Carson at over $1 billion, according to a joint statement from both firms. While the terms of the deal weren’t disclosed, that valuation may suggest that Bain paid around $290 million to Long Ridge for its stake (29% of a $1 billion company = $290 million.) That in turn could indicate that New York-based Long Ridge reaped more than eight times its original investment on its sale to Bain.

“A near 10-bagger in five years? That would be a spectacular return on an investment in a financial services firm in that short a time,” says Matthew Crow, the president of Mercer Capital, a business valuation and advisory company.

Because terms of the deal weren’t disclosed, Crow cautioned that Financial Planning’s extrapolated sum was “informed speculation.” The joint statement said only that Carson had acquired a “strategic partner” in Bain, adding that “we are grateful to Long Ridge for their partnership over these last five years of growth and development ... Bain Capital is the ideal fit for us — culturally and strategically.”

A spokesperson for Carson Group declined to confirm the numbers. Spokespersons for Bain and Long Ridge Equity Partners didn’t immediately respond to requests for comment.

Private equity loves investment advisors
Private equity firms are increasingly jostling for pieces of pure RIAs, which offer only fee-based services and are independent from pressure to sell commission-based products, and their hybrid cousins like Carson, which sell fee-based services on a fiduciary basis as well as commission-based products through affiliations with brokerages. Edelman Financial Engines, the nation’s largest independent advisory firm, is majority owned by Hellman & Friedman and Warburg Pincus. Bain calls the independent advisor space “a very large and highly fragmented market,” and experts say the businesses have relatively higher growth rates and income margins.

• Practice management
• M&A
• Private equity
• RIAs

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John Eubanks, a director and CFP at Park Sutton Advisors, an investment bank in New York that specializes in financial services firms, says that private equity shops buying minority stakes in advisory firms “is a recurring theme right now.” The investments are attractive, he says, because of the growing profit margins at RIAs, an upswing that has led to “a premium in valuations being paid now.”

Independent advisor practices have been in a flurry of mergers and acquisitions for years. “This industry is likely going through the beginning of another growth spurt,” says David DeVoe, the founder and CEO of DeVoe & Co., a consultant to RIAs. He says COVID-19 is the reason: When the pandemic hit, “advisors took care of their clients — it’s the fiduciary mindset.”

With the ratio of advisors to clients much higher at RIAs than at pure broker-dealers like Morgan Stanley, and over half of new clients at RIAs coming from referrals by existing clients, independent firms are poised for a surge in growth from COVID-driven referrals over the next two years, he says.

But some industry experts see a bubble. “If Long Ridge did that well on a stake in a garden-variety investment shop, God bless ‘em,” says Mercer’s Crow. “Carson isn’t some disruptive technology play, it’s money management." Barron’s ranked Carson Group number 12 on its 2020 list of best RIAs, after a number 9 ranking in 2019.

Last April, Carson founder and CEO Ron Carson said that he was searching for a new investor and wanted to create “an Amazon experience” or “an Apple experience” for clients by combining technology and “human connection.” The firm's Carson Wealth unit is a dually-registered firm, providing fiduciary advice through an SEC-registered RIA and broker-dealer services through its affiliation with Cetera Financial Group, a group of independent broker-dealers.

In 2019, Ron Carson willingly dumped his FINRA license, required of all independent advisors who operate according to the higher fiduciary standard, saying that doing so was good for business and more transparent for clients, even though broker-dealers operate under the less-stringent Best Interest standard. Critics say that hybrid firms muddy the waters for client, given that RIAs are held to a fiduciary standard while broker-dealers are held to a lower suitability standard, in which an investment need only be suitable, and not in the best financial interest of the client.

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While Bain Capital has made investments in financial and wealth technology firms, including Acorns, the micro-investing robo app, and Harness Wealth, a service that connects advisors with clients, it hasn’t typically invested in sizable wealth managers. Romney, a former Republican presidential candidate and former governor of Massachusetts, co-founded Bain Capital in 1984. He was worth around $250 million when he first ran for the Oval Office in 2012. Bain Capital’s current and former investments include Staples, Dunkin Brands, Bob’s Discount Furniture and Blue Nile.

In 2016, when Long Ridge bought its minority stake, Carson had around $6.5 billion in client assets under management. Today, according to the joint statement, it manages more than $17 billion client assets, from more than 37,000 families served through its advisor network of 110 partner offices, including 30 Carson Wealth locations. The firm consists of Carson Wealth, Carson Coaching and Carson Partners.