CAPTRUST, a Raleigh, N.C.-based advisory firm with more than $300 billion in client assets, is the largest of the so-called RIA aggregators focused on the retirement market. InvestmentNews sat down with CEO Fielding Miller to discuss his business, the market outlook and where it's all headed.
Greg Iacurci: What does the acquisition landscape look like right now?
Fielding Miller: The market is pretty strong in terms of firms looking to either monetize or fold in with other firms. I think there's a lot of movement.
We're involved on both the retirement adviser side and the wealth management side. And there's been a big shift in our strategy to focus more on the wealth side. Starting back in 2006 is when we decided we wanted to become a national firm. We felt like we had a competitive advantage in the retirement space, so that's how we built out our branch system. We went out and bought retirement advisers. Now, we're going into those same markets and buying wealth RIAs and putting them together. We want to offer the full continuum of services to plan sponsors and their participants, from the man and woman on the factory floor dealing with wellness services or participant advice all the way up to the C suite, where the executives have much more complicated situations, whether it be stock options or nonqualified plans. By adding the wealth firms, that kind of gives us the last piece of that continuum.
Where we've typically been about 70% institutional and retirement revenue and 30% wealth, that's going to be more like 50-50.
GI: Has there been one particular business, whether institutional or wealth management, where you find it's more difficult to recruit?
FM: People have to have a catalyst for action. What's different is the catalysts for someone in the retirement business might be different than the wealth management business. Succession is one of those catalysts that everybody deals with no matter what side they're on.
The catalyst that would drive a retirement adviser is they can plug into our scale and our systems and get some capacity. Most of the RIAs are in very small businesses, and they don't have the scale to invest in the infrastructure to keep up, in my opinion. We have to offer more and more services for kind of the same fee in a lot of cases. We used to be just kind of investment-focused, and now I'd say that's one of five things we do for plan sponsors.
The catalyst on the wealth side: Monetization and retirement succession are important, but we're looking for folks who want to grow. They buy into our strategy and we'll give them opportunities to work with the executives.
GI: It sounds like one market's not necessarily more mature than the other, but there are different things influencing acquisitions.
FM: The opportunity set for wealth firms is several thousand. The opportunity for retirement advisers is a couple hundred. The markets are drastically different in opportunities. Once we started focusing more on wealth, you can hardly get to them all. There are a lot of folks out there, so we can be choosy and get the right markets and the right people.
GI: Do you envision Captrust branching into other areas? A couple of your competitors have employee benefits businesses, for example.
FM: Our three business lines are retirement, endowments and foundations, and wealth management. We don't see adding another business line, but we do see adding more services within each of those business lines. For example, we've looked really hard at tax for wealth management and have come close to doing a transaction that would give our wealth advisers the opportunity to do tax work for clients. I wouldn't have even considered that a few years ago, but the way things are evolving it can make sense in certain circumstances. There's more need to bring private investments — private equity, private credit, private real estate — and create opportunities for investors to go to where some of the better opportunities are.
I think vertically we'll continue to add services to each of those business lines, but I don't see us getting to employee benefits. It's hard enough to keep up with what we've got. I'm sure the grass looks greener a lot of times across the yard and across the neighbor's yard, but we don't see going that way.
GI: How would you say the business of being a retirement plan specialist has been evolving?
FM: The pension consulting business started when ERISA was formed in the early '70s, and most of the retirement assets were in pensions. Another 10 to 15 years later, the 401(k) kind of came along. In the defined-contribution space, the primary driver for getting hired, back in the day, was investment-related — your ability to pick better investments and be a fiduciary. Now that's a fifth of the service offering we provide, from plan design consulting to fiduciary support, investments, dealing with providers and participant advice. That's five verticals right underneath defined contribution that virtually no advisers had 10 years ago. I think you'll see more of that.
GI: How are retirement plan aggregators adapting? What will they look like five years from now?
FM: I think you'll see more and more firms coming together so you can have the pooled resources to invest in building out services. I think you're going to see bigger firms that will have a competitive advantage, which will speed up smaller firms that want to join each other or join one of the groups.
GI: What do you worry about most in your line of business?
FM: Not executing. There are all sorts of ways you can fumble. Technology, for example — not the offensive technology like robo-solutions that are going to come displace us advisers, but the defensive technology for cybercrime, data security, all these sorts of things. That's going to be a critical area. If you're not making the right decisions on things like defensive technology, you could easily wake up one day and your data's gone, or somebody's hacked you, and you're not growing from that point forward.
Also, the bigger you are, the bigger opportunity you're going to get attached to a lawsuit somewhere. So it's making sure you have the systems, controls and processes in place. Not only are you giving good fiduciary advice, but you've protected yourself as a fiduciary. I think that's a big issue. You could easily fumble that one.