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Two RIA Buyers Hone Focus to High-End Firms

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
By Tom Stabile

Two outfits rooted on opposite sides of the country are basing future growth on acquiring uppercrust independent advisor firms, and both plan to close more deals this year.

Denver-based First Western Financial recently bought an independent registered investment advisor (RIA) firm in California, and has three more acquisitions set to close in the next three months. And Samoset Capital Group of Darien, Conn., has been ramping up to obtain majoritystakes in RIAs or to lift-out wirehouse teams, in both cases focusing on advisors with $500 million to $3 billion in assets.

Both are targeting advisors who roughly serve the $2 million to $25 million investor. Each outfit also offers an open architecture platform for most or all investment vehicles. And one firm already has private banking and trust services; the other plans to add those capabilities in-house.

First Western and Samoset are each aiming at a “sweet spot” of advisors that cater to investors who are “too big” to get tailored attention at a broad-based wealth manager but “too small” to fit into elite environments, such as multi-family offices, says Andrew Klausner, principal of AK Advisory Partners, a strategic consultant in Boston.

“The RIA marketplace has been and will continue to be a driver of growth in wealth management,” Klausner says. But he adds that while it’s a good time to have a growth model based on buying RIAs, these firms need to ensure they are presenting a unique value proposition, both to the advisors they want to acquire and to the investor end-clients.

First Western’s most recent acquisition is its seventh of an RIA, says Scott Wylie, the boutique bank’s chairman and CEO. Wylie is a former chairman and CEO of Northern Trust Bank of Colorado, and he co-founded First Western with Warren Olsen, who is vice chairman and CIO and a past president of Morgan Stanley’s mutual fund business.

First Western closed on its acquisition of GKM Advisers of Los Angeles, an RIA with $353 million in assets under management, on April 30. It now has three offices in California, one in Arizona, and five in Colorado. And it intends to continue growing in the Southwest and Western regions by acquiring more RIAs, Wylie says.

“It’s definitely an integral part of our strategy to expand into new markets,” he adds. “We’re a pretty unique strategic buyer, and that was true two years ago, it’s true today, and it will be true two years from now.”

The First Western model entails acquiring the RIA and then adding private banking and trust specialists, along with its technology infrastructure, which includes proprietary systems and a trust operations platform. Each location operates as a local boutique with its own board andofficers, but it takes on the parent name.

The firm has $2.5 billion in assets under management, focusing on the $2 million to $20 million client, Wylie says. He adds that the firm has capital in place to continue making acquisitions, with a focus on the Western U.S., in part because of a belief that the market is distinct from the East Coast version.

Wylie says while private banks on the Eastern side of the country work with a lot of intergenerational clients and families with “19th Century” wealth, the focus in the West has more of a first-generation flavor, with entrepreneurs and other “wealth creators.” And he says that begets a different culture, because clients in the East tend to want to have their wealth “taken care of,” while Western clients are more likely to want private bankers who treat them as partners.

First Western’s investment approach, overseen by in-house staff, combines proprietary strategies – largely separately managed accounts (SMAs) for domestic equities and fixed income – with similar third-party manager options, as well as outside managers for alternative investments and specialty asset classes.

Back East, Samoset’s inaugural acquisition closed last year, but it was an anomaly, says Peter Milhaupt, head of sales and new business development. The outright purchase of Baldwin & Clarke Advisory Services, an RIA with $120 million in assets under management, doesn’t fit the core model Samoset intends to employ, which will focus on obtaining stakes of 51% to 75% of advisor firms.

“We’re leaving a meaningful equity position with the partners,” Milhaupt says. “It’s built around the premise that we’re truly partnering with RIA firms.”

That original deal, self-financed by Samoset’s 15 partners, helped to jump-start its platform, which combines asset management with financial planning, estate planning and insurance services. Samoset also intends to acquire a private banking and trust division, Milhaupt says.

Two pending acquisitions are now in “active discussions” and others are in earlier stages, both with existing RIAs and with wirehouse advisor teams eyeing a move, Milhaupt says. Samoset will offer them elements such as an open architecture investment lineup, built with an internal due diligence team; succession planning financing; a client planning and reporting system that can take in liquid and illiquid assets; and a suite of advisor practice systems to handle matters such as portfolio accounting and trade order management.

Samoset will also handle central matters such as compliance and human resources, as well as marketing and best practice research. The firm plugs into five custodial partners.

While the model is akin to “holding companies” that had been active buying up RIA firms in recent years, Samoset appears to be aiming more exclusively to high-end firms than its peers. It also will offer access to its platforms on a private-label basis to similarly focused RIA firms.

Milhaupt says the goal is to create a national brand, though the early focus will be on the East Coast. The plan entails opening 10 to 12 “beachhead” offices that will serve as hubs for other offices, including acquired RIA firms, within their regions. “The last thing we want is to have hundreds of offices dispersed around the country that need to be managed individually,” he says.

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