"This isn't a late inning." The long-running trend of RIA acquisitions is "going to continue for years to come. It's still early," argues Bob Oros, chairman and CEO of the aggregator Hightower, in an interview with ThinkAdvisor.
On the whole, if an RIA wants to "preserve" its practice and value proposition in the long term, they "need to expand what they offer," Oros adds.
Whether that means doing so on their own or partnering with a firm such as Hightower is a decision they'll need to make, he says.
Oros came to Hightower in 2019 and morphed it from what was primarily a lift-out acquiring wirehouse teams into an aggregator focused solely on RIA acquisitions.
The Chicago-based company has been notching notable growth and now has 119 advisories in 34 states and the District of Columbia.
As of Sept. 30, 2021, assets under administration total $132.2 billion; AUM comes to $104 billion.
In recognition of its achievements, Hightower has won two ThinkAdvisor 2021 LUMINARIES awards, one for dealmaking and growth, the other for thought leadership.
In the interview, Oros exhibits unbridled enthusiasm for the firm's strategy of helping some of its advisories acquire other, smaller RIAs.
"I don't sit here with a dream of having 300 [primary businesses]. I'd like to create more scale from within," he says.
Merging into an existing practice is "proving to be a really effective strategy for us," Oros maintains.
The most recent such sub-acquisition is the merger of its Lexington Wealth Management, in Lexington, Massachusetts, with Freed Investment Group of Boston. The deal is set to close by year's end.
This is the second merger for Lexington this year, following the addition of Marcus Financial Advisors in Beverly, Massachusetts.
In the interview, Oros discusses his ideal acquisition candidate and why he describes Hightower as an "integrated aggregator." One reason: its upcoming launch of a national trust company.
ThinkAdvisor recently interviewed Oros by phone. As for finding the right match, he says: "If you're a seller, be really, really clear on the things that are important to you and your two to three non-negotiables, because that will help guide you to the right potential buyers.
"If you're a buyer, you need to have discipline around what you're really looking for and how to find out if that exists in the firms you're speaking with."
Here are highlights of our conversation:
THINKADVISOR: What are new trends in the RIA acquisition market?
BOB OROS: This isn't a late inning. The trend of people doing deals is going to continue for years to come. It's still early.
You'll continue to see RIAs look to expand what they offer. If you want to preserve pricing and your [value] proposition in the long run, you'll have to be prepared to do more.
Folks need to decide whether they're going to do that on their own or partner with someone.
Do you foresee more consolidation in the RIA acquisition space?
Yes. But it's not my belief that we'll end up with 20 large firms or 50, or even 100. I think there's a place for the really small, "boutiquey," intimate firm that delivers a different type of experience.
But I do think you'll see firms like Hightower and folks similar to us continue to get larger and larger.
There are many more sellers than buyers at present. How long can that continue?
Really good, well-run businesses with strong growth can command a premium price. But that's a small percentage of the industry.
The values are now, sort of, plateauing. The really great businesses are getting a fair price. We see a high volume of opportunity.
How do you define Hightower as a firm?
We're an integrated aggregator. We're not a roll-up, just buying a bunch of [practices] and bringing all the economics together and calling that a business.
When we do a deal, we take over a number of back-office responsibilities to give [the advisor] access to scale and capabilities, ranging from our investment solutions group to our [upcoming national] trust company to our estate planning department.
How does the private equity firm Thomas H. Lee fit in? Through a 2018 investment, it owned a majority of Hightower.
Last December, we recapitalized. THL is still a key investor and our partner. But we also brought in a syndicate of another 11 institutional investors.
Our advisors still own a significant amount of equity in Hightower: A third of the company is owned by folks on the inside — advisors and Hightower leadership.
The firm originally focused on lift-outs. When did you change your business model?
In 2016, Hightower executed its first RIA acquisition. Prior to that, our model was doing lift-outs of teams primarily from the full-service wirehouse firms.
I joined Hightower in 2019. Most of my career had been spent working with RIAs. So it was a natural for Hightower to lean in to that even more heavily. We chose to do one thing really well: RIA acquisitions. We no longer do lift-outs.
My understanding is that you acquire 50% to 70% of an advisor's firm. Is that correct?
That's a little too simplistic a view. Every one of our deals is bespoke. There's no typical deal. But we do want to keep that right balance of our partner having economic interest.
If all your risk has been taken off the table and we own 100% of the economics, that doesn't create the same motivation as if you have skin in the game.
What is consistent in every deal is that the clients all come over to the Hightower platform. The advisors are part of Hightower, and we're partners with the business going forward.
Who "owns" the clients?
All clients of the RIA become clients of Hightower. Think of it as co-owning the economics, because we want the business owners to still feel like owners.
