Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust Financial Advisors is a powerhouse in the realm of retirement plan advisers. However, the firm, which has $278 billion in client assets under advisement, is shifting to retail rather than institutional clients to drive its next phase of growth.

Over the past two decades, around 30% of Captrust’s annual revenue has come from retail wealth management clients, said J. Fielding Miller, chief executive and co-founder of the firm, which is an active buyer of financial adviser practices. He aims to boost that share to 50% over the next three to five years.

To execute that strategy, executives are ramping up acquisitions of advisory practices focused on the retail market.

“We definitely tilted toward doing more wealth management transactions,” Mr. Miller said.

Since January 2017, Captrust has bought seven wealth management practices, and it plans to announce an eighth in two weeks, Mr. Miller said. (He declined to identify the name of the new acquisition.) Over the same period, Captrust has acquired only two firms with an institutional tilt.

Most recently, last Monday Captrust purchased Morton Wealth Management, a hybrid registered investment adviser based in Greensboro, N.C., that manages $427 million for primarily high-net-worth clients.

Captrust has built a national footprint over the past decade by opening institutionally focused offices. It is the largest of the so-called RIA aggregators active in the retirement market. Of its $278 billion in total assets under advisement, retirement plans account for the vast majority — more than $250 billion, according to a filing with the Securities and Exchange Commission. Around $6 billion is from individuals (primarily high-net-worth clients), with the remainder from other institutional clients such as insurance companies.

Now, Mr. Miller said, the firm wants to acquire wealth management offices in the same cities as its institutional advisory groups and link them together. The goal is to have both an institutional and retail presence in the top 35 metro areas across the country by the end of 2026. (It’s currently in 21.)

This would allow the firm to provide wealth management for business owners with more than $1 million in investible assets, as well as advice on those same business owners’ company 401(k) plans, Mr. Miller said.

“We get a lot of cross-pollination between those businesses,” he said.

Private-equity firm Hellman & Friedman’s recent $3 billion acquisition of Financial Engines is a prominent example of the perceived value of marrying 401(k) and retail advice services. The PE shop is combining Financial Engines, whose clients are 401(k) participants, and Edelman Financial Services, seemingly hoping to capitalize on rollovers from participants’ 401(k) accounts to retail accounts managed by an Edelman adviser.

Captrust executives and third-party experts view the retirement plan market as a less profitable business segment than wealth management — one of the primary motivations behind Captrust’s ramp-up on the wealth management side.

“The profit margins for that business, for the most part, are going down,” said Dick Darian, CEO of The Wise Rhino Group, which consults with retirement plan aggregator firms on M&A and strategy.

Commoditization and fee compression have negatively affected 401(k) advisers, and will continue to, Mr. Darian said.

Mr. Miller also pointed to the “complexity” of the 401(k) business, which he said requires a greater degree of “infrastructure and human capital” to support it. Wealth managers typically require resources in two areas — investment management and financial planning — to support clients, he said, while retirement plan advisers require resources in at least five: plan design, fiduciary support and process, investments, provider research and benchmarking, and participant engagement.

These forces will likely push other 401(k) advisory groups to adopt a strategy similar to Captrust’s, Mr. Darian said.

“You’ll see more and more practices heading in that direction.”