Fledging advisory-firm aggregator has had an astonishing first year of life. Focus Financial Partners, a New York-based holding company for fee-only advisories, has acquired three more affiliates. That gives it a network of nine firms operating in 41 states and an emerging reputation as an aggressive and smart new force in the wealth-management industry -- all in the year or so since it opened its doors.

"We're really creating a new standard of wealth management by building a leading national firm that follows a strict fiduciary model," says Focus' founder and CEO Ruediger Adolf, a former general manager of American Express' brokerage and banking division and a former McKinsey partner.

Game plan

The holding company's latest acquisitions are St. Louis, Mo.-based Buckingham Family of Financial Services, Wakefield, Mass.-based Sentinel Benefits Group and Corte Madera, Calif.-based Quantum Capital Management.

Focus takes 40% to 60% stakes in high-growth firms with time-tested, high-touch fiduciary approaches to wealth management. From a day-to-day business perspective, Focus' partner firms remain wholly autonomous and their management teams stay put. Focus offers -- but doesn't foist -- support around referrals, marketing, intra-firm networking, technology and human resources (including help finding and grooming next-generation leadership for partner firms). Acquisition payments are a combination of cash and equity in the parent company, with additional earn-out incentives.

Candidates for acquisition by Focus are typically market-leading firms run by veteran advisors who want to maximize "the benefits of autonomy while benefiting from the resources, scale and best practices of a large national firm," according to Berkshire Capital, a New York based investment bank that specializes in wealth- and asset-management deals.

But to come in for consideration firms have to meet Focus' criteria in terms of business model, service standards and culture. And that's before they come in for what Adolf calls "rigorous due diligence to confirm that [each firm] is what it appears to be."

In 2006, Focus brought in six firms in two lots. Early on in the year it acquired Richmond, Va.-based Capital Advisory Group, Providence, R.I.-based Strategic Point, Cupertino, Calif.-based Founders Financial Network and New York-based Geller Group. In June 2006 it added San Diego-based HoyleCohen and Resnick Investment Advisors.

Boston-based private-equity firm Summit Partners is the source of the money behind Focus' rapid growth. Late in 2005, it put $35 million into the mix -- and pledged to come back with more if Focus proved a worthy investment.

Last year Focus said it planned to bring in around $25 billion in assets under management within five years by acquiring between 30 and 50 firms and through organic growth. The holding company targets firms that manage at least $350 million, though it will consider sub-acquisition by partner firms of fee-only shops that come under that bar.

Good start

Now though, with the latest round of acquisitions pulling its total assets under management or supervision from $5 billion to around $15 billion, Focus looks set to surpass its business-plan benchmark. "We're clearly ahead of what we were expecting at this stage," says Adolf.

The addition of Buckingham was a big part of this surge. The 12-year-old firm has a private-client advisory with $1.6 billion under management and a passive-investment platform provider to other advisories with $6.3 billion under management.

Mont Levy, COO of Buckingham's business-to-business complex, says the group was doing just fine on its own. "But as we looked ahead to the next 10 to 20 years we started see that Focus' de-centralized model was a way for a successful firm like ours to continue to be successful with our fee-based, client-first, product-neutral values [intact]."

The addition of Buckingham with its established turnkey investment program points to another hallmark of Focus acquisitions: it likes to buy firms that add to the holding company's overall capabilities. Though all of its partner firms are rooted in high-net-worth advisory, some have additional specialties. Geller Group, for instance, is a 401(k) consultant to small businesses. Founders Financial Network has the look and feel of a multifamily office. Capital Advisory Group advises private clients in addition to small and mid-size institutions. Strategic Point, whose principals host a radio show on personal finances, is a high-end financial planner.

"Clearly all [our partners] have something that makes us a better firm," says Adolf.

Levy says that partnering with firms with different specialties and emphases within the fee-only universe makes him feel like "a kid in a candy shop." Focus' affiliates are "unique firms, which means that there is lots of potential for synergy." But this goes beyond mere intra-firm referrals, he adds. "This is about learning from each other as well as finding out where we can help each other."

But interaction between Focus' partner firms is "very different" from the ties that bind participants in forums like study groups and industry associations, says Adolf. "Our partners have an economic stake in each other's success."

Head turner

Alois Pirker, who runs the high-net-worth practice at Aite Group, a Boston-based consultancy, views the emergence of Focus as one of the signal wealth-industry events of the past year. "With these [new] acquisitions, Focus is already about the size of First Republic in wealth assets," he says.

Merrill Lynch recently agreed to pay $1.8 billion for First Republic, a San Francisco-based private bank. First Republic had $17.5 billion in wealth-management assets at the end of 2006.

"This makes Focus potentially a billion-dollar company," adds Pirker. "And, given that there is some consolidation going on now, this really puts Focus on the radar screens of the big guys."

Large financial-service companies certainly seem eager to fill out gaps in their wealth-management capabilities through acquisition. In addition to the Merrill-First Republic transaction, other recent examples include the Bank of New York's $16.5-billion purchase of Mellon Financial and Bank of America's $3.3-billion acquisition of U.S. Trust from Schwab.

In most cases these firms are looking to round out private-client offerings to cover a full complement of investment-advisory, private-banking, trust and sometimes concierge services in pursuit of "holistic" or "fully integrated" wealth-management platforms.

"The interest big banking and financial institutions are taking in fully integrated wealth management isn't new, but it has accelerated," says Peter Stanton, head of the new wealth-management practice at New York-based recruiting firm Glocap Search and former head of banking strategy at UBS Wealth Management USA.

Another barometer of accelerating interest is the recent increase in private-equity investment in wealth-management firms. In the first nine months of 2006 private-equity firms put about $300 billion into the wealth-management, according to a November 2006 report by Berkshire Capital, which saw last year's total coming to around $400 billion, up from $283 in private-equity funding to wealth managers in 2005.

This race to wealth management comes as younger members the baby-boom generation enter their peak wealth-accumulation years. Older boomers meanwhile are coming into newly liquid assets as they prepare for retirement by selling businesses, exercising options and rolling out of pension-savings vehicles. Tiburon Strategic Advisors, a Tiburon, Calif.-based financial-service consultancy, sees U.S. consumer-held investable assets rising to around $30 trillion by 2010 from under $20 trillion in 2004. Another research firm, Boston-based Celent, sees a 24% jump in the population of North Americans with at least $250,000 in liquid assets to 37.7 million by 2010 from 30.4 million in 2006.

Similarities

However much it may be turning heads, Focus seems more interested in becoming a wealth-management power in its own right than in becoming part of a bigger company. Beyond its five-year initial growth plan, the firm has in mind to go public to fund further growth -- and as an additional incentive to its partners present and prospective.

At first glance Focus looks a bit like Nashville, Tenn.-based WealthTrust, a 10-year-old advisory-firm holding company with 10 affiliates. For one thing, both companies play on the same high-end, fee-based field. And, like Focus, WealthTrust is funded by a private-equity firm -- in this case New York-based Circle Peak.

But it's hard to push the analogy much further. WealthTrust tends to buy up bigger chunks of its affiliates than Focus does. It's also adding partner firms at a slower rate than Focus -- though that may change now that it's free from geographic restrictions imposed by Morgan Keegan, its former owner. For now though, WealthTrust is mainly confined to Appalachia, whereas Focus has strong presence on both coasts, including the lucrative New York and Silicon Valley markets. Finally, WealthTrust is a smaller outfit with collective assets under management about half that of Focus.

Adolf in fact sees more similarities between Focus and a pair of financial-firm aggregators that "don't play in our vertical" than between Focus and Wealth Trust. Those firms are Affiliated Managers Group, a Prides Crossing, Mass.-based asset-management company with equity investments in more than 30 firms and about $241 billion in assets, and National Financial Partners, a New York-based insurance distribution network of 170 firms. Both are publicly traded.

"We are now in the marketplace and our clients have access to a high-quality [but] highly differentiated service model," says Adolf, summing up Focus' first year in business. "We will have arrived when Focus is seen to represent the ultimate quality in wealth management." -FWR

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