Wall Street's latest to hook independent advisers? Alternatives

Wall Street just can't keep its hands off the independent adviser and broker-dealer marketplace.

Up until recently, major global firms had happily ignored independent advisers for decades. Advisers working at RIAs or independent broker-dealers' typical clients weren't rich enough, and advisers didn't have the mass of assets and clients to make them worthwhile.

Not anymore.

As regular readers of InvestmentNews know, Wall Street, via private equity funds and managers, over the past few years has been pouring money into the consolidation of networks of registered investment advisers; those investors are like bees hunting for nectar, zeroing in on well-run RIA businesses that have healthy cash flows and kick off sweet, sweet annual returns of 25% to 35% and perhaps even more.

The most telling example of Wall Street's newfound ardor for independent RIAs occurred in May 2019, when Goldman Sachs said it was buying one of the first and most prominent RIA networks and aggregators, Joe Duran's United Capital, for $750 million.

At the time, United Capital had had more than 220 advisers and $25 billion in client assets. At the time, Duran's personal payout from the deal was estimated to be in the neighborhood of $75 million to $150 million.

Goldman broadened its reach to the less than super-rich with its purchase of United Capital. And this month, another major Wall Street behemoth, Apollo Global Management Inc. with $481 billion in assets, said it was buying the distribution channel — think an army of wholesalers — and $5 billion in assets under management of Griffin Capital Co.

Established in 1995 and led by Kevin Shields, privately held Griffin Capital has raised $15.5 billion from investors to seed its various credit products, real estate investment trusts and more recently interval funds, according to a tally by Robert A. Stanger & Co. Inc. Apollo is acquiring the interval funds as part of the all-stock transaction, the terms of which were not disclosed.

This buys Apollo swift access to Griffin Capital's 200 RIA and independent broker-dealer client, along with the wirehouses with which Apollo already does business. Among those clients are some of the most prominent independent broker-dealers in the industry, including Commonwealth Financial Network and Cambridge Investment Research Inc.

"Griffin is a heavyweight in alternative investment capital markets," said Kevin Gannon, CEO at Stanger. "Griffin looks like a great addition to the formidable Apollo platform."

This deal wouldn't have happened a decade ago. Prominent Wall Street investors like Goldman Sachs and Apollo were still cowed by the 2008 credit crisis and were just beginning to try and figure out how to reel in more clients through RIAs and independent broker-dealers.

Back then, the most prominent alternative investment manager in the independent space was Nicholas Schorsch's American Realty Capital, which raised billions of dollars from retail investors who bought nontraded REITs.

Apollo has been keeping tabs on the independent adviser space for quite some time. American Realty Capital and Apollo struck a deal back in 2015 in which Apollo was to buy a majority stake in ARC; that eventually fell apart as business and regulatory problems mounted for American Realty Capital.

Apollo has recently said it wants to expand in the broad wealth management market, and its acquisition of Griffin Capital is a sign it's serious. More than 100 Griffin sales and asset management employees are moving to Apollo, while Shields will run a smaller business focused on private equity investing with about three dozen employees. The deal is expected to close by the middle of next year.

And by then, it's almost a certainty another major Wall Street player will try to plant its flag in the RIA and independent broker-dealer market. What's clear is that firms with the pedigree of Griffin Capital will be in short supply.