In a new episode of the Financial Planning Podcast, Wealthspire CEO Mike LaMena shared the story of how one of the largest fee-only RIAs in the country came together through a merger.
As one of the select firms making FP’s
Prior to joining the firm in 2017, LaMena was president and chief operating officer with the RIA consolidator Hightower. Before that, he spent 14 years with Morgan Stanley’s private wealth management division in New York and Hong Kong.
In the podcast conversation with FP Chief Correspondent Tobias Salinger, LaMena answered the following five questions about the launch of Wealthspire, current valuation levels and his thoughts on key industry trends shaping wealth management M&A for years to come.
1. Wealthspire launched in October 2019 as the product of a merger of Sontag Advisory and Bronfman Rothschild under parent firm NFP. The former National Financial Partners Corp. is a provider of benefits, insurance and wealth management owned by private equity firm Madison Dearborn Partners. How and when did this RIA giant come together?
2. Wealth management M&A is smashing records this year in terms of the volume of transactions, amount of assets and number of billion-dollar firms changing hands. What is a typical valuation like right now, and how do you approach that question in deal negotiations?
For context, I’ve heard that currently smaller practices are fetching about 2.5x to 3x revenue, which is up from around 2x or below only a few years earlier. A study last year from Advisor Growth Strategies cited a median adjusted EBITDA multiple of eight in 2020 across 33 deals, up from only 6.6x in 2019. How do those numbers sound to you?
3. With record M&A volume for the ninth straight year and a flurry of big deals to close out 2021, what are your expectations for 2022 both at Wealthspire and across the industry?
4. Wealthspire has referral arrangements with other NFP-affiliated firms such as NFP Retirement, Lenox Wealth Advisors, Fiducient Advisors and a former NFP affiliate in Kestra Financial. They’re listed in the firm’s SEC Form ADV brochure. How do arrangements that come with financial incentives for Wealthspire’s recommendations help advisors and clients?
5. You got your bachelor’s degree from Notre Dame in English and spent a year as a volunteer high school teacher at Mount St. Michael Academy in the Bronx. What were some of your favorite books from your undergraduate and teaching days?
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Transcription:
Tobias Salinger: (
Welcome back to the financial planning podcast. This is Tobias Salinger, and I am your chief correspondent at financial planning. Uh, we're very pleased today to have, as our guest Mike LaMena, the CEO of WealthSpire advisors. Thanks so much for being here
Mike LaMena: (
To be here. Thanks for having me happy new year,
Tobias Salinger: (
Happy new year to you as well. And New York based wealth SP is one of the largest fee only RIAs in the nation as compiled in our latest annual financial planning, RIA leaders rankings. The firm recently reached 17 billion in client assets across eight team offices upon closing its transactions of 2 billion RIAs prior to joining the firm in 2017, uh, lamina was president and chief operating officer with the RIA consolidator high tower. Before that he spent 14 years with Morgan Stanley's private wealth management division in New York and Hong Kong. And we've got five questions for you today. So I'll just jump right in about the firm. So WeSpire officially launched in October, 2019 as a product of a merger of Sontag advisory and Broman Rothchild under parent firm in FP. And of course, NFP is a provider of benefits, insurance and wealth management owned by private equity firm, medicine, Dearborn partners. How, and when did this RIA giant come together?
Mike LaMena: (
That's a great question. And you know, I think both of the legacy firms had long history of, you know, premium service to clients and, and FIU Sherry backgrounds. Interestingly Proman Rothschild, which was one of the legacy firms, had a history of doing M and a activity. They had been inquisitive and had, had purchased a, a number of firms and integrated them. Sontag had really grown in New York, purely organically client by client and had never really delved in, uh, M and a, a one of the advisors at, uh, bra and Rothchild was on a common industry study group with the president of saag advisory. And every time that they started to talk about an aspect of the business, whether it be how we approached service to clients, um, the investment process, the commitment to being fiduciaries, how we thought about aspects of driving and growth within the business, they saw commonality and consistency.
Mike LaMena: (
So it really started with a conversation. And the more that we learned about each firm, we felt there was great cultural alignment, business alignment. And interestingly, as we started to, to realize that there'd be value for end clients and value for the people involved, the team members, east professional opportunities, the, the path to doing a transaction had the historical acquisitive firm, Broman, Rothchild, actually selling to Sontag back by NFP. Um, so we put all those pieces together and, you know, from my perspective, I've been very involved in M and a for more than a decade. Um, we always ask two questions is a combination gonna create more value for clients, more services, more ability to impact clients positively, and two, will it increase the opportunities for the people involved? And the answer was overwhelmingly, yes, we put to two businesses together and it's, uh, it's hard to believe we're we're two and a half years plus in, uh, it's been a great ride. Um, we've done some additional M and a activity since, but we're really proud of what we're building with WeSpire and what we're able to bring to the clients we serve.
Tobias Salinger: (
And certainly you are, are, are making waves with, uh, a lot of these, uh, these very large deals such as the private ocean deal, as we were discussing just before we started recording and congratulations on that recent close, by the way, but across wealth management, M and a deals are really smashing records in terms of the volume of transactions, the amount of assets changing hands, the number of billion, do dollar firms overall, the number of deals for involving billion dollar firms. Uh, what is a typical valuation like right now? And as you kind of talked about your approach in deals, um, how do you approach that question evaluation when you're evaluating a potential deal? Yeah,
Mike LaMena: (
It, it's a great question. There's a tremendous amount of activity, uh, in the RA space from an M and a standpoint, um, valuations are, are robust, but from my perspective, that's a, a reflection of our industry, right? The overall macro trend of fiduciary investment advice from RIAs being the best model for individual investors to receive the kind of guidance they need E over their entire life cycle. So I think there's a lot of bullish trends that support healthy multiples from, you know, a well Spire perspective. Our first filter is, does the business combination make sense? Is there the right business alignment is, is the partnership going to create value? As I indicated earlier, for, for the people involved more professional opportunities, growth opportunities for individuals, our business is all talent based. We don't have manufacturing plants or, or intellectual IP. We really are about, you know, a professional services organization delivering to our clients through the talent that we can bring together.
Mike LaMena: (
So we think about it first, is it the right fit? We're never gonna be the highest volume acquirer we really focus on. If we can, if we can identify business combinations that we think are gonna create value, then we start to get excited. And then based upon that, it is a competitive environment. You need to be competitive and you need to be robust. And that's indicative of kind of the business we're in and the value of the combination. So where we have conviction, you know, we can be aggressive, but we're also just not gonna go out there, you know, and try to pursue transactions. That don't make sense. We think that that's a failing strategy
Tobias Salinger: (
And it, and you know, I, I know that it is a very competitive business and, you know, a lot of things for that reason and for, you know, and for other important ones are, uh, you know, a lot of details are confidential. So I completely respect that, but are you able to kind of talk about, you know, some, some, some specific numbers on EBIT, a multiples, I saw a study last year from advisor growth strategies. They said that there was a median adjusted EBIT, a multiple of eight in 20, 20, across 33 deals that they studied, uh, which was up from only six point in 2019. How do those, uh, how do those numbers sound to you?
Mike LaMena: (
I mean, it's definitely the trend. Um, I think the, the, the hesitance I have just talk about specific numbers is every deal is different, right? If, if it's a larger deal with, you know, sophisticated infrastructure that's built out that really targets a geography or, or, or a critical element of our strategy, you you're gonna be more aggressive if, if it's a smaller RIAA with slower growth and, you know, um, a lack of succession plan, there's so many factors that go into evaluating how you value a business, it's you struggle, but I, I would agree with you, absolutely. The base multiples are going up. So for a deal that last, you know, a few years ago might be at, at six exits at eight X, if it was at eight exit, it's 10, if it's at 10, maybe it's higher. So it, it really gets down to a unique evaluation of every opportunity and, you know, the unique dynamics of that situation obvious, faster growing scaled businesses, you know, with complimentary, um, resources and geographies are gonna be valued higher than, you know, a, a business that is less scaled with slower growth with, you know, client demographics, where you don't get as excited about it.
Mike LaMena: (
So from my perspective, every deal needs to be evaluated. What I'm comfortable with is we've got a strong view of, of how we want to build and evolve. Wells fire, private ocean was a great example, right? It allowed us, our vision is to be a truly scaled national RIA. You know, we wanted a, a presence on, on the west coast and to add, you know, a team of that caliber, that depth with presence in the bay area, presence in Seattle, that was huge for us, you know, and the more we got to know all the, the, the principles and the leaders of that firm, you know, we just felt like it was, it was the right combination. The business alignment was there. The cultural alignment was there, and we knew what would be additive. Uh, as we got in deeper into the due diligence process, it felt like we had been working together for a long period of time, which is always an indication to me that you could be optimistic about the, the Poste partnership.
Tobias Salinger: (
Excellent. And listeners, we are speaking with Mike lamina of wealth, Spire. We are going to take a very short break, but we'll be back with, with more right after this. And we're back, we're speaking with Mike lamina of wealth Spire, and we were just discussing the record M and a volume and all of the, the different aspects involved, uh, with negotiating a, a transaction, um, in this incredibly hot marketplace. So after a ninth straight year of record volume and a flurry of, uh, these large deals, just like your, your private ocean merger to close out 2021, what are your ex expectations for 2022, both at wealth SP and across the industry?
Mike LaMena: (
Gr great question. I, I don't anticipate any slowdown in, in M and a, if you look at some of the fundamental drivers, I, I think they're gonna remain in place, right? There's a lot of advisors that haven't figured out, succession planning that have built valuable businesses, but need to be a part of something more scaled and robust to, to really make the, the business sustainable, right, to go from a practice to a sustainable business. So I think the demographics, um, lean towards continued activity, as much as there is consolidation. You still have new RIAs being launched every day by advisors going from, you know, warehouse channels to the independent RIA side. Um, because as frankly, I think it's a better model for the best advisors to give advice to clients. So I think the trend is gonna continue. There's also a lot of, you know, uh, firms that are interested in consolidation, aggregation, you know, building something more robust and there's private equity money, and other sources that are, that are enabling that to occur.
Mike LaMena: (
So I think the trend is gonna continue, you know, for us, from a wealth spires perspective, we're gonna be active. We look at M and a as a huge opportunity to bring talent together. The, the, the hiring environment is very difficult right now. So when we look at combinations, we see it as a huge opportunity to add, um, talent that can be game changing for the so, um, we're gonna continue to be active. We'll never be the highest volume, you know, acquirer, uh, it's gotta be the right fit. The funnel tends to get narrow for us, you know, pretty quickly just based upon the conviction we have in, in the, in the, in the fully integrated model, the, the beauty for any RA today is if they wanna find a strategic partner, they can find, find any variation they're looking for. If they want to be a part of a firm where, you know, they get some monetization, but they're left to kind of do their own thing.
Mike LaMena: (
Um, they can get that. I, if they want, you know, a loose Confederation of firms that are sharing some best practices, but they're not commonly branded. They can find that if they want to be a part of a fully integrated model, like well, where we're focused on culture and collaboration and teamwork, and really building something powerful, you know, at the national level, but that maintains the ability for advisors to be who, who they are uniquely with their clients and in their local geographies. Then I think we can be a very attractive option. So it's gonna continue, we'll be a player, but we're gonna continue to be thoughtful and selective on the deals that really make sense for, for us aligned with our strategic vision
Tobias Salinger: (
And listeners, as you heard there, there are a lot of options out, out there, and, uh, finding a, a fit is a, a really great thing for your business. And there are more and more people interested in, in, in partnering these days. So, uh, definitely working with, with professionals on that can, can always, uh, uh, help you tap into it. A couple more questions. I'm going to close with a really fun one. Uh, this question might not be as fun, but it's, it's important. And it is something that, that comes up where you do have different forms of ownership these days. And you have, uh, a lot of firms working together in one capacity or another, and it, it relates to, uh, to, to conflicts of interest. It's a, it's a fact of life in the industry. Everyone has conflicts of interest. So they're listed in the S E form ADV brochure, um, for, for wealth Spire, there are referral arrangements with other NFP affiliated firms, such as NFP, retirement, Linux, wealth advisors for, to advisors and a former NP affiliate in Ketra financial. How do arrangements that come with some financial incentives for wealths SP's recommendations, actually help advisors and, and clients in the end?
Mike LaMena: (
It's a great question from, from my perspective, you know, our starting point is how do we create value for the end client? So a perfect example of where some of those referral arrangements come into play and are beneficial. Um, for the end client, I is a scenario where wealths fire might be working with the CEO of a company. And as we work with them through the wealth management lens, they may mention, or we may engage with them about, you know, how their 401k plan creates value for their, their clients. Now, I have great conviction that NP has one of the best suites of 401k capabilities and talented team members that are true fiduciaries serving, you know, the plan sponsors and the underlying plan participants. So if our advisor is able to connect that CEO, who is my much as he cares about his own wealth management cares passionately about the, the members of his team and making sure they get the right guidance through the lens of a 401k.
Mike LaMena: (
I, I think if we can introduce value added services, then that's hugely beneficial to the client. Our starting point is how do we solve problems that add value for clients? How do we understand their needs and address it? One of the things I like about wealth buyers is we are laser focused on wealth management. When, when we actually put bro and Rothchild and Sontag together, we had a number of, uh, uh, of people, 30 people, and 2 billion in assets in the retirement space. And we chose to align them with NP retirement. Why, because they're scaled and focused on that business. So I'm a big believer that, you know, that kind of focused effort in a particular vertical creates real powerful service delivery. What we are doing is saying it doesn't all have to be under the WeSpire brand. If I can introduce that to NFP retirement, and it creates value for the client.
Mike LaMena: (
Great. Similarly, if NFP retirement has a, a 401k relationship and they're looking to say, well, we'd really like to have better financial planning for our executives, if we can be a solution for that. Great fiducian is one of the leading firms in the foundation, endowment philanthropic space. If we have a client, a wealthy client we're working with on the wealth management side, and they are connected to a foundation that is scaled right, 20, 30, 50 million foundation endowment, if we can introduce them to fi and who's a leader in that space, it's additive. I think what I value is all of its open architecture. It's about an advisor being in a position to understand what matters to the client with full transparency, and then be able to say, look, look, I can introduce somebody that's gonna create value. So we think it's, it's a, it's a model that is absolutely client-centric and built around the way we work with our, our clients. And if you look at things like that, transparency is a big part of, uh, of who we are. It's a core belief for us. So we're transparent about it.
Tobias Salinger: (
Great, great to get that discussion. And after that question, I do wanna close out with, with a fun one. Um, as you can tell, I'm a deep read of both form ADV and company bios. You got your bachelor's degree from Notre Dame in English, and you spent a year as a volunteer high school teacher at Mount St. Michael academy in the Bronx, in New York city. What were some of your favorite books from your undergraduate and teaching days?
Mike LaMena: (
Yeah. Great, great question. Um, you know, I think my background in English is maybe a little atypical for financial services, but it served me well. I think it's always enabled me to hopefully be an effective communicator verbally in writing. You know, when I was at Notre Dame, I had a phenomenal British literature teacher. Um, Paul Raburn who, um, got me involved in Shakespeare and there was actually a class called Shakespeare performance. And the idea was if you were gonna, if you were gonna get on your feet and act out scenes from Shakespeare, you'd really understand the language and do the work to understand it at a detailed level. So he got me hooked on Shakespeare and I spent a lot of time, you know, digging into all of that, you know, Walt Whitman, um, some of the, the, the writers of age, we're always, um, very interesting to me. So, you know, I value that experience and, and hopefully it shows up in, in unique ways in the way I approach my, my role.
Tobias Salinger: (
And there you have it listeners that the classics of literature can lead to a highly successful career in the financial services who knew, but it does happen Mike lamina of WeSpire. Thank you so much for joining us today.
Mike LaMena: (
Thanks so much for having me. It was great talking with you and I look forward to doing again in the future.
Tobias Salinger: (
Excellent. And thank you for listening to the financial planning podcast. This episode was produced by Arizent with audio production, by Wen-Wyst Jeanmary and Kellie Malone. Special thanks this week to Mike LaMena of wealth Spire rate us, review us and subscribe to our content at www.financial-planning.com/subscribe from Financial Planning, I'm Tobias challenger. Thanks real.