Family Office
Focus Financial out to woo elite brokerage teams

Investment-advisory holding company sets up transition consulting
service. Wealth-firm aggregator Focus Financial Partners has new
consulting program aimed at helping top-producing "breakaway"
brokerage teams establish RIAs. Focus selects former brokerage
teams with sufficient scale and growth potential as well as
compatible cultures, walks them through the entire RIA set-up --
a process that can include working with a Focus-appointed COO on
a temporary basis -- and, in time, makes them into full-fledged
Focus affiliates.
Focus' "Connections" program is meant to "help elite brokerage
teams in their first steps toward independence" by providing them
with "an unprecedented support system and economic model that
gives them liquidity based on their newly created equity," says
the firm's CEO Ruediger Adolf. "Even the most
entrepreneurially-minded broker can be sidelined by the fear of
the unknown on the road to independence."
Billion-dollar team
To qualify for Focus' new "Connections" programs, teams have to
be coming out of fee-based, brokerage practices with at least
$400 million in assets under management and have histories
behaving like fiduciaries in terms at least of putting their
clients' interests first. In other words, except for the fact
that they aren't RIAs out of the gate, they have to resemble the
kind of established wealth-management firms Focus is in the
business of acquiring.
Focus' first Connections client is a case in point. Westport,
Conn.-based LLBH Group Private Wealth Management is a
six-week-old RIA whose principals had been affiliated with
Merrill Lynch, where they managed about $1 billion in client
assets.
Having decided that going independent was vital to their clients'
interests, LLBH's principals spent months assessing ways of
getting there. Among the options they weighed were
looser-than-captive affiliations with big-name firms and striking
off entirely on their own. They turned to Focus because its
Connections program offered comprehensive support from "a
high-quality organization" and an opportunity to become part of
Focus' network of successful wealth-management firms, says LLBH
partner Jim Pratt-Heaney.
"Focus' partners are what we are," adds Pratt-Heaney. "We were
just on parallel tracks."
Tottering titans
In most years in the past decade, a few hundred ex-wirehouse
brokers would set up or join RIAs. Recently though, RIA
custodians like Schwab and Fidelity have been touting an increase
in new investment advisories. That's an outcome, in part anyway,
of a severe and long-lasting financial crisis that has resulted
in several firms going under and several more changing
hands. This upheaval has left a lot of clients
wondering how safe their diminishing portfolios are in the hands
of Wall Street's tottering titans. Because it takes months to go
from deciding to leave to actually making a move, and because
Wall Street's troubles went from bad to really bad only about 10
weeks ago, it seems reasonable to expect the pace to wirehouse
defections to increase significantly in 2009.
RIAs are the most formidable asset gatherers in the
private-client space. In the 18 months through June 2008, the
three biggest RIA custodians -- Schwab, Fidelity and TD
Ameritrade -- hauled in $215 billion in new assets, according to
a recent Citigroup equity-research report. In the same period,
the top full-service brokerages -- Merrill, Smith Barney, Morgan
Stanley and UBS -- brought in $168 billion.
The big custodians offer transition advice to former brokers
setting up their own RIAs, but Focus provides a level of detailed
support and guidance -- around things like office space,
technologies, human resources and compliance -- that surpasses
custodial offerings, according Pratt-Heaney. In addition,
the prospect of permanent partnership with Focus fosters an
atmosphere of closeness and collaboration that makes the
Connections program additionally attractive.
Adolf agrees. "The custodians have terrific services," he says.
"But there's a night-and-day difference between how you work with
a vendor versus a potential partner."
Aggregation, Inc.
In the main stream of its business, Focus acquires between 40%
and 60% of its affiliates in cash-and-stock deals. It looks for
established, market-leading firms with managers who plan to keep
running their firms for another 10 or 20 twenty years.
Affiliates get help from Focus with marketing, compliance and
recruiting. But the firms handle their own approaches to
investments, trade execution and custody -- though where
economies of scale can be brought to bear, Focus will negotiate
with vendors on its affiliates' behalf.
In terms of cross-firm networking, sharing expertise and making
referrals, Adolf says Focus is there to foster collaboration
between partner firms, but it doesn't force them to work
together.
Focus is also ready to help its affiliates with succession and
sub-acquisition planning and financing.
In an example of a sub-acquisition, Focus recently facilitated
the purchase of the Leicester, U.K.-based investment advisory
Roger Harris & Company by Manchester, U.K.-based Greystone
Financial Services, a firm that became a Focus affiliate this
past spring.
In addition to its new U.K. offices, New York-based Focus has
offices on both U.S. coasts and in the Midwest. The company and
its affiliates have 650 employees and -- as of last spring --
about $30 billion in client assets, making it the biggest RIA
aggregator out there.
Focus, which has been in business since late 2005, has financial
backing from Summit Partners, a Boston-based venture-capital
firm. -FWR
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