A new high-profile buyer is making a big splash in the already crowded RIA market.

Backed by private investors and run by big names, Wealth Partners Capital Group is making a big bet on an unusual approach to the ultracompetitive M&A market — and industry observers give the new aggregator a good chance of succeeding.

Founded by John Copeland, Rich Gill and Sean Bresnan, the executive team that ran the highly successful wealth management division of Affiliated Managers Group, the new firm is targeting RIAs with less than $1 billion in AUM. But unlike other aggregators, Wealth Partners is taking a three-pronged, multiregional approach to adding smaller firms.

The company has bought minority stakes in three large wealth management firms, Torrance, California-based EP Wealth Advisers, Forbes Family Trust in New York and Cleveland-based MAI Capital Management. Wealth Partners will use the three vehicles to aggregate smaller firms.

EP, Forbes and MAI have a combined AUM of approximately $11 billion, and will remain majority-owned and operated by current management.

"We're making a big bet on these three firms," says Gill, a former Focus Financial senior executive who joined AMG in 2014. "We think they have the right combination of platform, very strong management team and technology to be a solution for smaller firms in the industry."

SELLER'S MARKET
But Wealth Partners is plunging into an extremely competitive market, well stocked with deep-pocketed buyers including aggregators Focus Financial Partners, which recently received a major capital boost from private equity capital boost. Other buyers include HighTower Advisors, which recently recapitalized and the fast growing United Capital Partners, which is also targeting smaller RIAs.

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The firm isn't the only one benefiting from a still strong breakaway movement.

Larger RIAs are contributing to the seller's market, with heavyweights such as Bronfman E.L. Rothschild, Beacon Pointe Advisors, Mercer Advisors, Savant, Mariner Wealth Advisers and Snowden Lane all vying to acquire smaller firms.

But Wealth Partners has "several characteristics that could lead to near-term success," says David DeVoe, managing partner of DeVoe & Co., a San Francisco-based consulting firm specializing in RIA mergers and acquisitions. "Their team is seasoned, they have deep pockets, and they have an established footprint in several key money centers."

Gill acknowledges that differentiation is critical in such a crowded market.

"That is the question," he says. "We think the anchor firms we're working with make a difference and the fact that we're minority, non-control investors. I think we're also unique because of our access to capital, our expertise and our management experience."

BIG NAME BACKERS
In addition to the founding partners, Wealth Partners is being capitalized by private investors, including the Forbes family and Eric Schwartz, a former head of Goldman Sachs' asset and wealth management division.

AMG is also investing in the new company by contributing its equity interest in Forbes Family Trust, according to Copeland, himself a Goldman alumnus who was president of AMG Wealth Partners from 2011 to 2017, with previous stints at Morgan Stanley, Lehman Brothers and Credit Suisse First Boston.

AMG Wealth Partners, which has an interest in five wealth management firms with over $40 billion in AUM combined, will be run by Ben Scott, who co-founded the division with Copeland seven years ago.

Whereas AMG targeted large firms with between $4 billion and $14 billion in AUM, and faced multiple well-capitalized bidders, Copeland says they saw a void in the market for smaller firms that lacked capital, scale and a "good succession plan."

LOWER AUM, FEWER BIDDERS
What's more, there is less demand for smaller RIAs, Gill says. "There are fewer bidders for firms between $200 million and $1 billion in AUM, and even less for those below $200 million. United Capital has been successful acquiring firms in that market, but not many others. It's hard to manage an $80 million office."

Wealth Partners, via its three anchor RIAs, will take a minority interest of at least 30% in a firm, Gill says, at "a reasonable and fair price" based on free cash flow, replacement costs and "a fair market multiple."

"Capital and valuation are rarely sticking points," he explains. "Finding the right advisers and having a meeting of the minds is much more important."

Despite the competition, industry observers like Wealth Partners' chances.

"A model that is targeting the sub-$500 million AUM range for sellers should find good traction," says DeVoe. "In addition to fewer consolidators targeting this segment, there are simply a much higher number of firms in this universe, compared to the $500 million and up range."

John Furey, principal and founder of Phoenix-based Advisor Growth Strategies, agrees.

"The lower end of the market is not as competitive," Furey says. "The real competition is in the middle market of firms with between $500 million and $2 billion in AUM."

SIZING UP THE MARKET
And while AMG's management team brings the new aggregator cache, they are mostly known to the wealth management industry's larger players, Furey points out.

"The trick will be getting the pro formas and deal model balanced properly," he says. "Having a platform via three RIAs is unique."

And Matt Cooper, president of Beacon Pointe Advisors in Newport Beach, California, points out that the new firm may have been born out of necessity as much as demand.

"John Copeland and Rich Gill are both very reputable and solid guys," Cooper says. "They understood there was a limit to what they could accomplish in the AMG model because there simply weren’t enough targets in $4 billion plus AUM pool. So this move to be a capital provider to a few platforms allows them to make just a few targeted investments in RIAs that are aggregating and in turn gain access to a much greater number of small RIA targets. There are simply a lot more firms under $1 billion than there are RIAs over $4 billion."

Cooper says he welcomes the competition.

"I think this is a plus for the industry overall," he says. "It provides more choices for RIAs looking for a partner or platform to join and infuses more capital into the market."

As for Wealth Capital's long-term plans, Gill says the new firm can afford to be patient.

"We're not private equity so we're not required to do anything in a certain time frame," he says. "There might be opportunities in 5, 10 or 15 years for events like an IPO, a sale or a partnership or we may continue to be a great advisory-led business."

Charles Paikert

Charles Paikert

Charles Paikert is a senior editor at Financial Planning. Follow him on Twitter at @paikert.