Corey Kupfer 3/11/23 Corey Kupfer 3/11/23

DEALQUEST PODCAST – Pat McClain

M&A Talk with Leading RIA Aggregators and Integrators:

Pat McClain of Allworth Financial

Pat McClain, Senior Partner and Co-Founder of Allworth Financial, is much more than his company. He is distinguished in the RIA industry, for more than two decades, he has been co-hosting Allworth Financial’s Money Matters, which is one of the nation’s longest-running financial topic radio shows and podcasts. He also has served as a keynote speaker for a multitude of financial conferences around the nation. In 2021, Pat was named one of the 10 “Icons and Innovators” by InvestmentNews. Pat’s expertise has contributed to Allworth Financial being ranked 23rd on Barron’s 2021 Top 100 Independent Advisors list. While under his and his partner Scott Hanson’s leadership, Allworth Financial has grown to over $15 billion in assets.

As the RIA space grows, the options for buyers and sellers can get a tad clouded. As an industry leader, Pat fully understands just how make-it-or-break-it the market is today. Growing up in a socioeconomically modest, large Irish family, he jokes that when he grew up he wanted to be “not picked on,” but his serious desire was to, like his father, go into business of some sort.

Pat reminisces on his first commissioned job as a child through his father. They would go to hotels that were being remodeled and acquire all the pictures and paintings that were to be replaced. Then, together they would go to swaps or flea markets to resell the pieces for $2-3 each. His commission was generous, he says, at 25¢ a picture. This was a good deal for a child not even 10 years old!

As Pat grew up that dealmaker mindset ran steadfast. In junior high, he ran a cactus stand for a man at the same swaps and flea markets he would attend with his father. After 6 months, the cactus stand owner went on vacation and never returned, at this time Pat was positioned to buy out the man’s entire inventory and take on the business for himself. This adolescent cactus stand became Pat’s first business.

ALLWORTH AND A MODEST START

Before Allworth Financial, Pat and fellow now-Co-Founder Scott Hanson worked at a different firm in neighboring cubicles. Three decades ago, Pat and Scott decided to leave that business in hopes of establishing their own firm, Hanson McClain Advisors. Pat rolled out his $10k IRA for 60 days to fund the initial capital for the business, then he and Scott were able to lease an office space from an accountant. They then began buying the bare necessities to get started. This was a modest start, but a start none the less with great potential.

In their company’s infancy, they began with a salaried advisor model and market and made the appointments for the advisors.

HITTING A RISK TOLERANCE WALL

As Pat and Scott grew their firm, they realized they had something special. As time passed, more and more interest began coming towards the pair, and they were starting to have to turn away offers due to hitting a risk tolerance wall. For Pat, he says at that point more money was clearly possible, but more money wouldn’t necessarily make his life better, however, less money would have.

Which is not often something many people think of when they are riding the wave of financial growth. Most people think the goal is to just accumulate as much money as possible, however, a good business person understands the risks that can be involved with consistently trying to accumulate more money than what is needed or can be handled, not just personally but within your business, too.

By taking a personal inventory of his risk tolerance, Pat was able to balance out his work and life to something he – and his family – are now happy with. His business seems to be happy with his choices, as well. In his words, “he quit running his business for cashflow, and started running it for value and for long-term capital appreciation.”

GROWING UP ALLWORTH FINANCIAL ORGANICALLY AND INORGANICALLY

In 2017, Allworth Financial sold a controlling stake to Parthenon Capital, a “private equity firm that partners with and invests in management teams and their companies,” per their own website. In 2020, Parthenon Capital sold off its $8 billion stake in Allworth Financial. Pat speaks highly of Parthenon, attributing this acquisition as “one of the best decisions we ever made.”

This major acquisition in 2017 by Parthenon allowed Allworth to grow significantly, and in Pat’s words, “brought a level of sophistication to our business that was beyond what we were doing, but not what we were capable of; they made us think about us being bigger than ourselves.” This push in the right direction allowed Pat and Scott to go from $2.4 billion in AUM to nearly $10 billion in less than a 4 years’ time. In late 2020, a new capital partner, Lightyear Capital, bought out Parthenon Capital, in turn adding great value to Allworth Financial.

Because of these high-value deals, Allworth Financial’s menu of offerings to clients has grown exponentially. They have made acquisitions, integrated key additional capacities, and other additions to their firm’s offerings. These include but are not limited to:

Integrated tax offerings – at times even for free to clients
Integrated in-house insurance desk
Integrated estate planning
Hired an estate planning attorney to review wills and trusts
Added 55 IP for tax laws harvesting
Direct indexing
SMAs
Highly robust Analytics and Insights Team

Pat estimates in great deal due to these previous deals, his firm’s offerings have expanded by at least ten-fold.

Many of these expansions and additions are not accessible to smaller firms, as they weren’t accessible to Allworth prior to their deals with Parthenon and Lightyear. Many of the small firms would love to have fully stocked departments and heads, but Pat states you have to get to scale in order for it to work. Although some owners can become overzealous and end up putting the cart before the horse, well-thought-out strategic growth can be very different. This goes back to one of the many discussions I have had about ego and dealmaking, and in turn not allowing your ego to run your business. In Pat and Allworth’s case, the growth has been very strategic and successful.

MERGERS & PARTNERSHIPS: A PERSONAL INTEGRATOR MODEL

In the RIA space, similar to many others, the term “mergers and acquisitions” is commonplace. For Pat, he prefers to call them “mergers and partnerships.” Pat prefers “mergers and partnerships” terminology because Allworth is always looking to bring in like-minded, aligned people who will become key partners in the firm’s moving forward, especially with being on the same wavelength in regards to:

Financial planning
Tax
Estate planning
Asset management

While M&As do not always seem like a very personal thing, Pat and Allworth Financial choose to take a more personal approach to their mergers and acquisitions, ensuring that the partnerships and deals being formed are all about mutual satisfaction and harmony.

With all that being said, Allworth Financial, at the core, operates under a primary integrator model. The key to Allworth’s integrator model is the whole business is shifted onto a common platform. The benefit to this model choice is two-pronged for Pat:

Free up time for partners and advisors, so they have the time to do what they like to do, IE: go out and generate business or meet clients.
It offers significant efficiencies through technology and processes.

EFFICIENCY IN BUILDING A CLIENT BASE

In a space where significant equity is being rolled over, Pat wants to ensure the deal is a perfect fit, and this can be exceptionally difficult to find a good fit for your needs. IE: The best marketers may not be the best financial advisors and vice versa.

Pat’s model splits the two: He has 26 marketers on a team with a call center that schedules the appointments for the advisors. While advisors are free to seek out their own clients – and the compensation for that may differ – he’s found that having a dedicated team in the call center that are setting up appointments for his advisors will keep the business running more fluidly for everyone involved.

This setup has also allowed Allworth the freedom to bring on many different types of advisors and personalities under their banner:

The ones that like to go out, meet the folks, have the golf meetings and drum up their own business
The ones that have no interest in doing all the socializing to make the connection and prefer the clients seek them out
The advisors who like any degree of balance between those two types

Granted, most of Allworth’s advisors choose to utilize the call center and have appointments assigned to them, having this freedom to accommodate different personalities allows for his firm to not restrict themselves on the types of clients they bring in thus in return broadening their potential clientele pool significantly.

INTEGRATING WITH PURPOSE

Pat has certainly been on many sides of the M&A scope. He’s been the employee, the small business, and the co-owner of a multi-billion-dollar company. He’s had the opportunity to see inside the nooks and crannies and inside all the closets within the RIA space, so it is safe to say his expertise is very well-rounded throughout experience.

For instance, Pat knows that no entrepreneur has ever thought, “Sign me up for a corporate job and give me an infrastructure that I need to report in to.” His belief is that Allworth’s main focus is to find out what people’s motivations are. Pat offers the perfect anecdote of a firm they recently integrated, wherein the owner’s personal goal was to go out and generate business, work the first couple of years with the client, and then step away and allow someone else to nurture the ongoing relationship. It’s important to Pat that his firm has flexibility for all its’ clients and has the ability to work with its’ clients, not against them, and certainly not force them into decisions or boxes they are not interested in.

For my full discussion with Pat McClain, and more on the topic:
Listen to the Full DealQuest Podcast Episode Here

FOR MORE ON PAT MCCLAIN:
https://www.linkedin.com/in/patmcclain/
https://allworthfinancial.com/
https://allworthpartners.com/

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

Corey Kupfer 3/9/23 Corey Kupfer 3/9/23

DEALQUEST PODCAST – Matthew Cooper

M&A Talk with the Leading RIA Aggregators and Integrators:

Matthew Cooper, Beacon Pointe Advisors

Matthew Cooper has many accomplishments under his belt. He has been featured in Forbes Magazine, was a finalist for the “Individual Thought Leader of the Year & for the 2019 WealthManagement.com Wealthies Industry Awards and was the winner of “M&A Leader of the Year” for the 2022 WealthManagement.com Wealthies Industry Awards. Overall the most meaningful to Matthew is the business that he is a Founding Partner and President of, Beacon Pointe Advisors, one of the U.S.’s most successful RIA firms with locations spanning all over the country.

The RIA industry was not Matt’s first business calling. Following his college graduation, Matt began his career in the life insurance industry. Nevertheless, life has its turns, and that life insurance firm branched out into the RIA arena and, as Matt says, “Here we are.” Matt was responsible for working out deals when a client’s loved one passed away and this gave him an early start at deal making. Matt took the knowledge he had through his early education in deal making and built Beacon Pointe Advisors into what it is today, a remarkable RIA powerhouse firm and acquirer. Beacon Pointe Advisors has:

● 13,000+ clients

● 375+ on staff nationwide

● 220+ Designations and Certifications including CFA, CFP®, JD, MST

● Since March 2020 -- after bringing in Beacon Pointe’s first capital

partner -- completed 24 successful transactions

BRINGING IN A CAPITAL PARTNER

For nearly 20 years, Beacon Pointe had no capital partner. This changed when the company took on two underlying RIAs – one expressly for the inorganic growth side of the business – and discovered they weren’t as aligned as they had originally believed. Not only did the M&A RIA start to grow much larger than the other RIA, but several veteran shareholders were looking to exit and cash out. This misalignment paired with the timing of shareholders wanting to exit, caused Matt to see the natural need to bring in outside capital and merge the two RIAs together.

Alignment is extremely critical in M&A; if one facet is out of sync, the entire existence might come crumbling down like a house of cards in a downpour. Matt took on the challenge, recognizing the opportunity, and decided to bring in a capital partner to assist the firm in evolving.

Choosing the right capital partner can:

● Help you strategically

● Offer your business more value

● Lessen potential risks

● Accelerate growth

For Matt and Beacon Pointe, the right partner was KKR & Co.

IT’S NOT A HOBBY

As a dealmaker, Matt has been doing a great deal of heavy lifting through Beacon Pointe. To close even one successful deal – let alone the volume and caliber of Matt’s deals– it takes a great amount of knowledge, tenacity, and dedication. Matt emphasizes the importance of dealmaking as a conscious exercise; “It’s not a hobby,” he adds. Nothing could be truer.

For Matt to make such effective deals at the volume he does, he has a process that he sticks by:

● Keeping his mindset sharp on the deal, remembering “it’s not a hobby”.

● Having teams built and in place: one team to source the potential deals, do due diligence, and then build the LOI.

● Following the LOI, an integration team performs further due diligence and remains on-task post-close until the firms are fully integrated.

● Having all the department heads at Beacon Pointe be a part of the whole process.

● Knowing when to push, and when to ease up in the deal-making process.

FULLY INTEGRATED MODEL TO SERVE CLIENTS As previously discussed in episode 199 of The DealQuest Podcast, there’s debate within the M&A RIA space about aggregators versus integrators. Beacon Pointe is squarely on the fully integrated model side. This means:

● One brand

● One ADV

● One tech stack

● One company culture

The goal, whether you’re an aggregator or an integrator, is to limit confusion about potential targets with so many options and choices available these days in the RIA space. To help mitigate confusion, Matt has constructed a consistent story in the marketplace regarding Beacon Pointe’s all-wealth approach. This allows the numerous teams across the U.S. to have the flexibility and speak with their own voices while keeping on the agenda with Beacon Pointe’s strategy.

Matt’s approach to dealmaking is very people-oriented; this shows the importance of how well his people within the firm get along. Matt has three pillars he continues to focus on with Beacon Pointe:

● Access to institutional quality investments

● Life and legacy planning

● Impact initiatives

EQUITY-FORWARD AND MAJORITY INVESTORS

Another feature of Beacon Pointe’s integrator model is being equity-forward and doing only majority investment deals. Due to the need for cash flow at the time, Beacon Pointe’s first nine deals featured a 100% equity swap, going forward they now prefer to keep the equity between 20% and 60%, with the sweet spot for a typical deal being the high-30% range. These percentages result from the fact that equity is the most expensive consideration for them, however, equity is generally a very attractive incentive to investors, as the higher multiples and growth rate of Beacon Pointe help create greater enterprise value for all.

Depending on your goals and expectations, bringing in majority investors can be viewed as a positive or negative. Some attributes of bringing in majority investors can be:

● Founders can build their company to be a bit self-operating in which they can take a break from the daily operations by sharing responsibility with majority investors.

● Sometimes new ownership can add a fresh perspective, which might be precisely what a business needs to be reinvigorated.

● Each investor is likely going to have a series of people they trust on their end. They may very well want to bring those people in, which will offer a fresh perspective and expertise that you may not otherwise have had access to.

● For founders, a surface-level concern is the need to give up control to majority investors, however, Matt prefers to see and present it as giving a little to gain a lot in the long run.

ATTRACTING THE RIGHT CLIENTS UNDER A FULLY INTEGRATED MODEL

A major part of the debate between aggregator and integrator models is not only the route to the end goal, but also the type of clientele you are aiming to attract for your business while avoiding wasting time on deals that will not function well with your model. Beacon Pointe targets firms with assets ranging from $3 million to $2 billion for Beacon Pointe’s fully integrated approach. Beacon Pointe can offer the most value in the future to firms who fall within that target range.

Other attributes Matt seeks in potential firms:

● An earnest desire to be a planning-first type of person, or driven to get a planning-first attitude

● Those looking to not make a quick exit but remain for the long term; be it five, ten, or fifteen years. Their intentions are to make those upcoming years more prosperous than the previous.

● Those looking to be proactive and active in building a solid long-term operating company for the clients

● Primarily standalone RIAs versus wirehouse or IBD advisors.

The main intention should always be to create a structure to be attractive to the people that want to be involved. If you are not projecting yourself in an appealing manner, you are not going to garner interest, pure and simple. Beacon Pointe’s approach is to ensure that equity is split all around to achieve a long-term outcome that will satisfy all involved.

IT’S ALL ABOUT GROWTH

Growth can mean so much more than just referring to the expansion of your own business or your own personal achievements. The M&A RIA space has undoubtedly evolved and changed over the past decades. Currently, more RIAs are being founded than are being absorbed, so despite the consolidation caused by the aggregators and integrators the market is still expanding. Whether you are an aggregator or integrator, you lie somewhere in between, or are considering selling to one, you are part of a natural maturation of the RIA space that will continue for some time. One of the many elements that enable this industry to continue to expand and flourish is the healthy competition combined with increasing options for all that are involved. We appreciate Matt giving us further insight into Beacon Pointe, one of those quality options, and his view of the RIA industry and the deal market in general.

Listen to the Full DealQuest Podcast Episode Here

FOR MORE ON MATTHEW COOPER AND BEACON POINTE ADVISORS:

https://www.linkedin.com/in/mattcooperbpwa/

https://www.beaconpointe.com

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

Corey Kupfer 3/8/23 Corey Kupfer 3/8/23

DEALQUEST PODCAST - Introduction

M&A Talk with Leading RIA Aggregators and Integrators: Introduction

On Wednesday’s episode of the DealQuest Podcast, I discussed attending two RIA M&A conferences, and how this inspired me to create a special series on the DealQuest Podcast dedicated only to the topic of the different deal models and structures of the leading RIA aggregators and integrators.

Well, folks, this is the start of that series. On Fridays, I will bring in leaders of the top RIA aggregators and integrators. These private equity-funded firms cover mainly 91% of all these deals currently happening.

AGGREGATOR AND INTEGRATOR

I’m sure you’ve heard me use these terms on the DealQuest Podcast plenty of times. These are also terms used readily in not just the RIA communities, but other industries, as well. So, what exactly do they mean?

There is a difference between “aggregator” and “integrator”, and not everyone falls under one label.

A pure integrator model is where a firm comes in to buy your existing firm with the goal of customarily rebranding under the buyer’s brand. Some perks of using an RIA integrator:

● 1 brand

● 1 tech stack

● 1 ADV in the RIA industry

● Often a closer-knit community with the intent to scale more quickly

The expectation is, through integration, to focus solely on building the one brand while building equity, enterprise value, and scale within the brand.

Whereas aggregators come in, buy your firm, but generally allow you to keep the branding. This can be done through co-ownership or being a separate entity. Some of the purported perks of aggregators include:

● Not having to sell your branding under the buyer’s name

● Possibly more flexibility on tech choices, not being locked into a tech stack

● You could potentially have more control over decisions

Our discussions will additionally cover how combining both the aggregator and integrator models sometimes can be the best option. In fact, some firms believe the best way to build a better deal is by combining what they perceive as the most beneficial features of both models.

THE RIA SERIES

This series will aim to provide RIA firms and advisors who want to grow their knowledge or are considering selling, and the opportunity to hear directly from multiple leaders of the most active aggregators and integrators in the RIA industry. These leaders will assist in walking you through the landscape of the RIA industry.

Some of these topics include, but certainly will not be limited to:

● Discussing their different models

● Why is one model better than another

● Who are their capital partner(s)

● Whom they’re looking to target

● The deals they have completed

● What their future plans are

● What might be the best fit for you, the listener

● Overall, what’s going on in the industry now

The goal of providing you with this series is as a potential seller or just someone who is looking to understand the various options available out there today and to have access to the ideas and principles that underlie top aggregators and integrators. This series will be giving you access to the visions and plans of the leaders of each of these firms additionally allowing you to evaluate them individually and easily compare them.

I want you to be able to comprehend what some of the best firms and dealmakers did to establish themselves as industry leaders and how that may benefit you by either doing a deal with these leaders or echoing their approaches for your own independent greater success.

Ultimately, although directed more specifically to the RIA industry, this series will also be of great value to those outside the RIA industry. This series will allow a unique insight into a maturing industry that has significant capital flowing but still has much room for additional growth and evolution. The wide range of covered topics will be applicable to many listeners from other industries. My goal is always to assist you in becoming a better dealmaker, no matter the nature of your deal.