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Kestra promises advisors it won’t sell to a competitor

Amid reports surrounding a possible sale of its majority stake by Stone Point Capital, Kestra Financial sent a company-wide email blast aimed at quelling fears that such a sale would disrupt some 2,300 advisors’ practices.
“We are not and will not be pursuing the sale of Kestra Financial to a strategic buyer,” CEO James Poer said in the memo sent to advisors and obtained by Financial Planning.

Instead, the document outlines a distinction between “strategic buyers (competitors) and financial investors (private equity and other institutional investors)." The memo goes on to note that while Kestra has not ruled out a change to its capital structure by striking a deal with players that fit within the latter category, any change “would be made with your business in mind first.”

The email followed an InvestmentNews report last week that Stone Point would offer up the stake it purchased in Kestra from insurance firm NFP less than three years ago. Kestra and Stone Point had not previously spoken publicly about the report.

The report came as a surprise to Kestra’s advisors, according to advisor Lee Rawiszer, who spent 15 years affiliated with Kestra before he and his partners launched their independent RIA, Paradigm Financial Partners, earlier this year outside New York.

Advisors expected the PE firm to sell its stake eventually, but what sounded like a longer-term play over seven to 10 years is “turning out to be a very short-term investment,” Rawiszer says, noting he exchanged emails with several friends who are Kestra advisors after the reports surfaced last week.

“They’re already getting called by headhunters and outside firms,” says Rawiszer. “They said they got no advance warning. They read it in the news like everyone else did.”

In the memo, Kestra stressed that any important news would come from the company first. “Among other things, we would not impose a change requiring advisors to repaper their accounts,” Poer writes. “To the extent you are being told otherwise by competitors or recruiters, these stories are simply not true.”

Prospective suitors must submit their first round of bids in this calendar year, but the subsequent talks among those vying for the stake would likely last a number of weeks or months, according to a source within the investment banking community who said they have spoken to “a few” parties engaged in the process. The source did not say whether any bids have already occurred. “There are only a few firms out there that fit that criteria and even fewer that are available,” the source said, praising Kestra’s growing revenue, quality management and solid compliance record.

Other advisors, like Kestra advisor Sharla Rountree of Lakewood, Colorado-based Personal Benefit Financial, expressed less concern about not being looped in, citing Poer’s message.

“I expect that’s going to be bought and sold,” Rountree says of Stone Point’s stake. “That’s typical in our industry nowadays. My clients don’t care about that as long as it’s still me.”

Kestra CEO James Poer

Stone Point tapped the Goldman Sachs team that managed the sale of the majority stake in IBD network Cetera Financial Group this summer for $1.7 billion, according to the source. A spokesman for Goldman declined to comment. “From time to time, Kestra Financial will hire bankers to help manage its capital structure,” Poer said in the memo. “An efficient and flexible capital structure allows us to continually invest in the value we offer our advisors and clients and to fulfill our ongoing mission to empower advisor success.”

A representative for the New York-based PE firm Stone Point declined to comment. Kestra spokeswoman Jen Diehl said in an email that the firm’s normal outside public relations firm was “not permitted to be quoted on Kestra's behalf, but there will be no comment.”

Neither Austin, Texas-based Kestra nor its subsidiaries, the San Diego-based hybrid RIA for wirehouse breakaways Kestra Private Wealth Services and the Rockville, Maryland-based midsize IBD H. Beck responded to follow-up inquiries. Poer did speak to Financial Planning in early November, though, before the report of the possible sale.

“A good private equity firm should want return on their investment,” Poer said, rejecting industry criticism of PE acquirers as temporary owners who turn over companies quickly. “That doesn’t really change anything for the advisors that are served. It’s capital structure, that’s it.”

Kestra Financial revenue

Advisors “understood this was a possibility,” agrees advisor Thom Shumosic of Wilmington, Delaware-based MidAtlantic Retirement Planning Specialists. The potential interest shows that “obviously, Kestra is doing something right,” he says.

Shumosic doesn’t believe any potential deal will affect his business.

“It’s not like they’re going to sell to Cetera, LPL [Financial], et cetera,” he says. “I have total confidence in the management of Kestra that they’re going to do the right thing by the advisor and for the advisor and for the future growth of our operations.”

Fellow advisor Gary Baker, whose St. Louis-area practice Undivided Wealth Management affiliated with Kestra PWS earlier this year, compared a possible deal to Warren Buffett selling off a position.

“From my standpoint, I don’t think it changes anything. The bottom line is that I think shareholders want to get a return on their investment,” Baker says. “This private equity firm’s position doesn’t dictate our day-to-day activities.”

Shumosic notes that M&A deals in the wealth management space are “usually a pretty long, drawn-out process,” and the former Kestra advisor, Rawiszer, says his friends who are still with the firm will be watching to see whether any transaction changes payouts or other arrangements with the home office.

“No sense worrying about it until something happens,” Rawiszer says, recalling his advice for the other advisors after a “crazy year of transition and change” in launching his independent RIA. “I said I wouldn’t make a rash decision just based on a headline.”

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