For years, the industry has talked about how rising pressure on the average investment adviser with $100 million to $300 million in assets under management drives consolidation.
Even large firms are feeling the heat now, as indicated by the merger of $1 billion Keel Point, a Vienna, Va.-based hybrid registered investment adviser and broker-dealer, with $550 million BlueCreek Investment Partners. The move was designed to help the firms, which will operate as one company with two brands, reach a “critical mass” that will let them negotiate pricing with custodians and product providers, according to Robert Mayes, founder of BlueCreek, which is based in Huntsville, Ala.
“You have around 1,300 firms with a billion or more in assets, and the reality is that's who controls the conversation in terms of pricing product,” Mr. Mayes said in an interview. “You have to be large enough that you're able to control those conversations and have more influence in terms of being able to provide services to clients that are economically viable" to them.
Mr. Mayes, who started BlueCreek in 2003, said he hopes the company can grow to $5 billion in the next five years, mostly by hiring veteran advisers to open at least one office a year.
The partnership was formed as a tax-free “business combination,” so while the firms will now operate as a one legal entity, no money was paid by either firm for control of the assets, Mr. Mayes said. The deal went into effect Dec. 31.
“It's very different from a lot of other transactions ... that are economic or like the aggregation model,” he added.
Mr. Mayes becomes chief executive of the combined firm, while Keel Point founder David Parks will be executive chairman. They have known each other for more than a decade, but two board members pushed the idea to join forces.
The businesses have offices in the greater Tennessee Valley, Washington, Huntsville, Vienna, and Kansas City, Mo.