We talk to one of the top men at a firm which takes a different approach to helping wealth managers achieve independence.

There has been plenty of M&A activity shaking up the wealth management sector, as an almost daily run of news stories shows. A concern for some is finding the best ownership model to ensure that clients are looked after rather than forgotten in a dash for results.

For many deals, private equity backing, as discussed here, is the norm. And it raises questions about alignment of interests. One way those questions can be answered is to have a variety of backers for deals to create diversity and balance. That was one of the arguments that arose when Family Wealth Report interviewed a firm growing via deals: Sanctuary Wealth.

A week ago, Sanctuary, majority-owned by Azimut Group, closed a $175 million investment from Kennedy Lewis Investment Management. A balance of different types of owners, therefore, is a good platform for considered growth, Vince Fertitta, Sanctuary president, told FWR recently. 

Sanctuary takes strategic stakes in other firms but does not necessarily buy 100 per cent stakes in them. “We are interested in co-investing alongside firms,” Fertitta said. 

If an RIA is up for sale, Sanctuary can partner with a private equity firm and buy it and, in time, move to a minority stake. This is “lucrative for us,” he said.

There has been plenty of activity. Sanctuary recently brought in SkyPath Private Wealth, a New Jersey-based firm that had $1.2 billion in assets under management from Merrill Lynch. It invested in GoalPath Solutions, a firm based in Overland Park, Kansas. Earlier in July it welcomed Marriott Wealth Advisors. And, as reported separately today, it has brought Crescent Pine Family Office Group in Rye, New York, into its network. (See another example here.)

The gap
There remains a gap in the market for those who want freedom from a large firm without the responsibility of owning their own RIA/broker-dealer. And that is where Sanctuary comes in.

“We fill that sort of void; our partner firms maintain all of the benefits of owning their own business, but we take on the regulatory responsibility and have built an easy-to-use platform for serving wealthy clients. They have their own brands, and we allow them to conduct their business through our regulated entities,” Fertitta said. “Each of our partner firms have their own brand….Sanctuary operates in the background.”

“By nature, successful, high-performing financial advisors are entrepreneurial, and they are motivated…. they don’t want to be managed and yet they are often stuck in an employee’s world,” Fertitta continued. 

The industry has seen the rise of organizations such as Focus Financial, Hightower and Dynasty, creating structures through which some financial advisors can move from an established firm to create their own shops. (The other side of the gap, Fertitta argued, is firms like LPL, Finet and Raymond James who take on the regulatory burden and offer a lot more support than the aforementioned firms, but at the expense of some of the freedom, flexibility, and control sought after by breakaway advisors.)  
 

Origins and services
Sanctuary was founded by Jim Dickson, its chief executive, in 2018 and Fertitta joined a year later. Fertitta and Dickson were formerly senior executives at Merrill Lynch’s wealth management business.

Sanctuary provides technology support, gives a curated platform and assists the firms in its community in other ways, in areas such as compliance, operations, billing, technology, integration and support, tax and accounting, family office, marketing support, and practice management. 

Among additional options, Sanctuary offers co-investment opportunities for acquiring other practices. It also provides liquidity options for firms to remove risks or sell up.

Fertitta said one of the important distinguishing features of Sanctuary is that it is willing to offer what client firms ask for, rather than provide a standardized offering. To some degree, this request for bespoke help came as a bit of a surprise, he said.

Another request is for chief investment office portfolios that could be seamless for clients to roll into, Fertitta said.

“All of these things have been built at the request of our partner firms and I think that’s unique. I am very active in the development process with our new recruits,” Fertitta added.

As assets under management across Sanctuary’s partner firms rise, this gives them combined buying power and enables them to negotiate lower fees, which can be partly passed down to clients, he said. 

More than 70 per cent of the business conducted over the Sanctuary platform is fee-based.

Private equity funding
Fertitta disagreed that private ownership money in the wealth management space is a problem, and Sanctuary’s own involvement with Azimut has been successful and harmonious, he said.

“We decided we wanted to balance our board of investors with more active and opportunistic owners, which is what Kennedy is. These are two very different perspectives.” These differences have worked well and provided diversity, he said.

One of the strengths of Sanctuary is that it provides member firms and managers with a community of competitive peers who can share ideas, test themselves against one another, and generate innovative ideas. When many advisors quit a large firm and go on their own, they can lack such a peer network and incentive to benchmark themselves against other top advisors, Fertitta added. 

Finally, FWR asked Fertitta if he expects the M&A deal flow to continue across the industry, given that there has been a lot of activity already.

“I expect the pace to accelerate as firms decide to monetize at high levels after a very long bull market,” he said.