Two-year-old wealth-firm aggregator far exceeds its own growth predictions. Focus Financial Partners has acquired five more affiliates. The additions give the RIA holding company a network of 14 partner firms with more than $25 billion in client assets, putting it well ahead of the growth it -- and its private-equity backer Summit Partners -- foresaw at launch in January 2006.

Back then, as Focus was coming out of the gate with four partner firms and combined client assets of $3.5 billion, CEO Ruediger Adolf said the plan was to hit the $25-billion mark within five years; in part through organic growth but chiefly by bringing its affiliate total to between 30 and 50 firms.

"We're clearly ahead of schedule," Adolf says now. "We got recognition earlier, and so were able to attract a broader selection of firms with significant scale than we originally thought we would."

Kevin Mohan, a general partner of Boston-based Summit, describes Focus' progress to date as "fantastic."

Summit controls an investment fund of about $9 billion. It made a $35-million investment in Focus late in 2005, and hinted that it would commit more to the venture as needed. So far, however, Focus has been able to fund further growth with traditional-source lending.

Catalyst

"[Focus] has turned into something large and successful earlier than we thought it would," says Mohan.

In terms of the recognition Adolf mentions, Focus has garnered an unusual amount of press coverage for a company of its size and type. In August 2006, Adolf made Registered Rep magazine's "Top Ten to Watch" list for that year.

But to potential partners, the addition early this year of St. Louis, Mo.-based Buckingham Family of Financial Services may have been as important an indicator of Focus' success as any amount of favorable ink. At the time Buckingham managed about $1.6 billion in its direct-to-client business and another $6.3 billion through BAM Advisor Services, an outsourced investment platform.

"Buckingham was a catalyst," says Adolf.

Focus also seems to benefit from old-fashioned pavement pounding. Robert Jazwinski, founder of new Focus affiliate JFS Wealth Advisors, says Adolf first contacted him about joining the then-nascent network in 2005; pre-launch, in other words.

Partners

Initially Jazwinski demurred. "I didn't think JFS was ready to begin that journey," he says. Adolf kept in touch, however, and Jazwinski came to see a match between his long-term plans for the wealth advisory he founded in 1986 and the new RIA aggregator.

"I really like [Focus'] business model, the team Rudy has assembled and the other partners," says Jazwinski.

Hermitage, Pa.-based JFS joined Focus this past summer, shortly after Irvine, Calif.-based Benefit Funding Services Group made the leap. The other new additions are Williamstown, Mass.-based Dion Money Management, Wellesley, Mass.-based GW & Wade, and Church Falls, Va.-based Lara, Shull & May.

Its other affiliates, Buckingham aside, are Richmond, Va.-based Capital Advisory Group, Providence, R.I.-based StrategicPoint, Cupertino, Calif.-based Founders Financial Network, New York-based Geller Group, San Diego-based HoyleCohen, Westport, Conn.-based Resnick Investment Advisors, Wakefield, Mass.-based Sentinel Benefits Group and Corte Madera, Calif.-based Quantum Capital Management.

Scale

Focus acquires between 40% and 60% in its affiliates, which get a combination of cash and equity in the holding company. Its targets are usually high-growth firms with at least $350 million in client assets operated by experienced advisors who want the benefits of independence along with the scale and depth of a national network. But affiliates have to adhere to strict fiduciary standards of wealth management -- or, as with several of its affiliates, third-party pension-plan administration.

The principals of Focus' partner firms, frequently their founders, continue to run their own businesses. The holding company offers affiliate-level help with marketing, compliance and human resources but it doesn't foist these things, or anything else, on its partners. Affiliates follow their own leads with regard to investment products, execution and custody.

"We're not trying to build a copy of a wirehouse," says Adolf. "We're successful because what we're doing is aligned with what made our partners successful in the first place."

Though participation in network-level programs is voluntary, economies of scale are rapidly coming into play for Focus' partners. With a combined client base of 11,000 and an aggregate workforce of about 550, the Focus network is a giant in the independent RIA space and for its vendors -- asset managers, custodians and technology providers alike -- a customer worth keeping happy.

Long term

Focus' increasing scale is also making intra-firm networking more dynamic, says Adolf. He gives the example of a partner firm that drew on the expertise of another affiliate going into a pivotal client meeting.

Succession planning is another aspect of the Focus formula. Though Adolf emphasizes that the holding company doesn't "do exits," it will help junior partners finance buy-ins to individual partner firms. And for firms that lack such personnel, it will help identify and recruit people who can be groomed for future leadership.

The idea is to provide for the departures of its partners' senior members and provides for next-generation leadership at the affiliate level. "We are an instrument to ensure continuity for our partners and for Focus," says Adolf.

Affiliation with Focus means laying the groundwork for "the long-term plan," says Jazwinski. "I have no desire to step down right now, but in 15 or 20 years I might want to slow down a bit." With this in view, adds Jazwinski, the pay-out that came with Focus' acquisition of JFS wasn't a motivation for the link-up. Rather than the part-cash payout, Jazwinski says he'd have "taken all Focus stock" if that were possible. "This is about working in a superior business model and [participating in] in the growth of Focus as an entity."

Rapidity

For Mike Glor, principal and founding partner of new Focus affiliate GW & Wade, the attraction to Focus boils down to its understanding that "this business is about personal relationships."

It also helped that the transition to affiliation with Focus was seamless for his clients, adds Glor. "We made a point to call all our clients beforehand," he says. "It was nice to be able to reassure them that the transaction would be invisible to them."

There are other RIA aggregators out there, says Peter Rockefeller, a managing director New York-based investment bank Berkshire Capital, but Focus is probably the most aggressive. Adolf "has grown the company on a very rapid timetable," he says.

Other companies in the game include Boston Private and WealthTrust. Firms like insurance-brokerage holding company National Financial Partners and asset-manager networks such as Affiliated Managers Group, Asset Management Finance and Convergent Capital Management have similar missions even where wealth management is more of a sideline than a raison d'etre.

New age

At bottom, Focus and these other firms are trying to get pieces of a $37.2-trillion global wealth-management market that has more than doubled since the mid 1990s. If anything the rate of personal-wealth growth seems likely to accelerate in coming years as baby boomers enter their peak accumulation years or sell businesses, exercise options and divest from pension vehicles in preparation for retirement.

Boston-based research firm 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. Another research firm, Tiburon, Calif.-based Tiburon Strategic Advisors, predicts that investable assets held by U.S. consumers will rise to around $30 trillion by 2010 from less that $20 trillion in 2004.

Though a tide like that is likely to lift a lot of boats, Focus is betting that independent investment advisories will benefit particularly. "Independent RIAs manage 15% of personal wealth" in the U.S., he says. "They should be managing 50%."

To support this view Adolf points to data from Boston-based Cerulli that shows assets under management by independent RIAs increasing from $286 billion in 1997 to $750 billion in 2005. Citing Tiburon research, he also notes that RIAs increased assets under management at a faster rate than discount brokers, wirehouses, mutual funds, banks and insurance companies between 1995 and 2004.

"This is the beginning of the age of the independent," says Adolf. "Wealthy individuals are realizing that they're better served by an RIA than a sales person." -FWR

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