NEW YORK — Two of the biggest names — and personalities — until recently associated with Royal Alliance Associates Inc. now are attempting to build national firms.
Mark Goldberg, Royal’s chief executive until last January, this month started a partnership with a private-equity firm to buy pieces of wealth management firms. Meanwhile, Ric Edelman, who was the largest adviser with New York-based Royal until he left in 2005, has plans to give his
financial planning firm a national presence.
The two, however, plan to build and expand in very different styles.
Mr. Goldberg is doing so discreetly and has a pool of $250 million for the fledgling endeavor to buy pieces of, or loan to, wealth management firms. He has a five-year window to invest the capital.
Mr. Edelman, meanwhile, is using the bully pulpit of a syndicated radio show to continue to build his brand. He has written six books and made almost as many appearances on Oprah Winfrey’s syndicated television show. Mr. Edelman hopes to expand the markets for his cable TV program in the very near future.
Elusive strategy
However, creating a national network of wealth managers or financial planners can prove elusive, said one industry observer.
“It seems that everybody has this idea for
consolidation,” said Philip Palaveev, senior consultant with Moss Adams LLP in Seattle.
So far, he’s counted more than 15 groups that are working on such roll-ups.
And convincing advisers to sell their practices is also extremely difficult, Mr. Palaveev noted. Ninety-eight percent of advisers that Moss Adams surveyed were not interested in selling their firms.
“Yet some deals are getting done,” Mr. Palaveev said. “It’s just not a lot of deals.” He pointed to National Financial Partners Corp. and Focus Financial Partners LLC, both of New York, as among the most successful groupings in the market.
About Mr. Goldberg’s new firm, Mr. Palaveev said: “I think the most astonishing thing is the $250 million to spend on advisory firms.” With current valuations, that much money could translate into a 50% stake in 100 practices.
“That’s a lot of firms,” Mr. Palaveev said.
Both National Financial and Focus Financial are also clients of Moss Adams, as are other consolidators, he said.
Both Mr. Goldberg and Mr. Edelman said that their offerings are unique, and downplayed any potential rivals.
“It’s a financial planning practice on a national scale,” Mr. Edelman said.
“We’re not a broker-dealer or a custodian,” Mr. Goldberg said. “We have capital solutions for
wealth management companies.”
And the market for such firms is getting hotter, sources said.
“It’s interesting how much money is chasing how many advisory firms,” said a Royal Alliance adviser, who asked not to be named. “In general, there’s a lot of capital out there.”
Mr. Goldberg, who has invested his own capital in the new firm, Private Wealth Management of New York, said that the firm — of which he will be CEO and president — will make investments in and loans to wealth management firms.
He declined to say how much of a stake he has in the venture, and also declined to name his private-equity partner. Mr. Goldberg, who some described as a dynamic and driven leader at Royal Alliance, said he is “really pleased to back in the business and working with advisers.”
He stressed that the objective is not to slap a brand on any of the wealth management practices in which he invests.
“Look at the financial services business. Where’s the best place to invest money?” Mr. Goldberg asked. “Invest directly in the firms. The adviser’s relationship with clients is the one place that’s not commoditized.”
“How the capital markets are looking at our industry is very exciting,” Mr. Goldberg said.
The time is ripe for a firm like his, he said.
“These [wealth management] firms don’t have normal sources of capital to go to,” Mr. Goldberg said. And many firms need capital to finance growth. In addition, firm owners are able to cash out.
Mr. Goldberg said that he’s in the process of six to 12 transactions. Eventually, he wants about a dozen staff members at the new firm.
While Mr. Goldberg’s new venture stresses the private nature of each transaction, Mr. Edelman wants to use his place in the public eye to build a network of hundreds of financial planners.
Banking on star power
In January, Mr. Edelman’s eponymous radio program was syndicated by the ABC Radio Networks and is broadcast in some of the country’s biggest markets, including New York, Los Angeles and Chicago. He plans to piggyback the growth his firm, Edelman Financial Services LLC of Fairfax, Va., on the expansion of his media presence.
“Advisers can say to their clients, ‘You’ve heard of Ric Edelman,’” he said. “We believe that’s a very significant edge to attract and maintain clients.”
Three years from now, as many as 400 advisers could be using his turnkey asset management platform, the Edelman Managed Asset Program, Mr. Edelman said.
Those advisers will either be working in new Edelman branded offices or through referrals, he said.
Mr. Edelman, however, isn’t pushing only his brand; advisers don’t have to use EMAP if they use the asset management platform.
In May 2005, Sanders Morris Harris Group Inc. of Houston acquired a majority stake in his firm, which has over $3.5 billion in client assets.
Mr. Edelman said he has been working on this expansion for eight years and that Sanders’ deep pockets have been key.
“This was largely the reason I sought someone to acquire my firm and did the deal with Sanders Morris,” he said.
