Focus Financial Partners not afraid of market volatility

CEO Rudy Adolf defends business model during earnings call; shares drop 12%

Nov 13, 2018 @ 5:12 pm

By Jeff Benjamin

Stock market volatility is a plus for the Focus Financial Partners (FOCS) business model, according to chairman and CEO Rudy Adolf.

"Volatility is actually a good thing because it shows the value of prudent financial advice," Mr. Adolf said during a Tuesday conference call to discuss the company's third-quarter results.

Focus Financial got a taste of that volatility itself Tuesday, after its shares declined 12%, closing at $31.99.

Focus Financial, which raised $565 million during a July 30 initial public offering, lost $38.9 million in the quarter, compared with a loss of $37.9 million in the same quarter a year ago. The company reported $235.7 million in third-quarter revenues, representing a 30.8% increase over the same quarter a year ago.

Adjusted net income for the quarter was $34.1 million, a 43.4% increase from a year ago.

In response to a question about how fourth-quarter results might look in light of the extreme stock market volatility that picked up in October, Mr. Adolf stressed that the clients of the Focus' partner firms are prepared for such market conditions.

"We are primarily operating in high-net-worth and ultra-high-net-worth markets, and we are first and foremost in the wealth preservation business," he said. "I think the volatility is a good thing, and I don't see a major impact regarding our flows."

Mr. Adolf repeated his claims from the second-quarter earnings call that he believes the U.S. financial advisory space is flush with 500 potential partners and another 5,000 firms that could be good fits for existing partner firms.

In terms of stock market impact on the business model, Mr. Adolf said 25% of third-quarter revenues were not directly related to the equity markets.

Regarding the 75% of revenues that is tied to market performance, Mr. Adolf said the risk is muted beyond just pure equity exposure.

"We ultimately believe that with prudent balanced asset management, there will be no major impact on us from asset management or [earnings] perspective," he said. "It's not all equities, it's close to a 50-50 balance fixed and equities."

Underscoring the growth strategy, the earnings report highlighted eight advisory firms that joined Focus, adding $30.6 million in new revenue that was counted in the recent quarter.

"In any market environment, we are not worrying about client retention," he said. "You have new assets that would be impacted, but flows from traditional players will be substantial, and we are partial beneficiaries of that."

Meanwhile, organic growth during the quarter was 9.7%, compared with 14.4% during the same quarter a year ago.

"The organic growth rate is lower, but 9.7% is still an excellent number," Mr. Adolf said. "We believe we had a very good quarter."

Looking ahead, Mr. Adolf sees a full pipeline of new partner firms, which he believes is a byproduct of going public.

"We have an excellent pipeline," he added. "Quite frankly, it's the strongest I can remember, and it's attributed to the IPO."


What do you think?

View comments

Most watched


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print