For the thousands of advisors nearing retirement with no succession plan, Focus Financial Partners wants to be Plan B.
The largest aggregator of advisory firms says its partner firms have signed contingency agreements with 55 new firms in the past two years -- although three of the firms have since sold their practices to Focus partner firms, says Focus vice president Anita Venkiteswaran.
Broadly,
TRIGGERING A TAKEOVER
The agreements that Focus has created allow one of its partner firms to take over a practice if the owner dies or becomes incapacitated, the company says. Such a takeover triggers a payout to heirs, Venkiteswaran says, with a valuation to be determined at the time by the company's financial health and client retention after the switch.
One advisor says he found a continuity deal to be "a necessity" as his firm grew.
Kevin Kroskey, who founded True Wealth Design in Akron, Ohio, in 2007, now manages $85 million AUM for 100 client families. He signed a contingency contract with Focus partner firm JFS Wealth Advisors in Hermitage, Pa., because he found "their culture and services are similar" to his own firm.
"If something happened to me," he says, "I know my family would be well served."
PRELUDE TO BUYOUTS?
It's no coincidence that three of the initial contingency deals have turned into buyouts, say Focus execs, who explain that the agreements are intended to be a prelude to acquisitions down the line.
Once signed, the two firms get a chance to know each other better; a Focus partner firm may end up buying the smaller firm, but the two sides are also at liberty to go their separate ways, says Focus cofounder Rudy Adolf says.
Venkiteswaran says the total assets managed by firms who have signed the contingency deals amounts to $5.5 billion, although that includes the three firms who have since been acquired.
ORIGINS AT BUCKINGHAM
Adolf says he and Adam Birenbaum -- CEO of both the largest partner firm in the Focus network, Buckingham Asset Management, and its affiliated platform, BAM Advisor Services -- hit upon the idea over dinner a couple of years ago.
"The idea emanated from Adam's experience with Buckingham's BAM network," Adolf says. "Adam felt that providing a reliable and scalable successions solution would be terrific value add to his network. Over dinner we both got more and more excited about the potential of the idea with applicability well beyond Buckingham."
Industrywide, advisors over the age of 60 service clients with more than $2.3 trillion in AUM, Adolf says.
"We really think it's an industry first," Birenbum says. "It's almost like a life insurance policy for wealth management firms. It's there when you need it, not when you don't."
Adolf feels strongly enough about the program that he says Focus is seeking to patent it as a business process, although he declined to provide a copy of the application.
"We believe that a patent is a good way to protect this unique concept and protect the industry from 'also-run' models that cannot provide the scope and quality of succession planning that Focus and its partners can," he says.
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