RIA firm sues Focus Financial for books and records

Strategic Point Investment Advisors LLC, a wealth management firm that was one of the original affiliates of Focus Financial Partners, has sued the company to get access to its financial data.

The action was filed under seal in Delaware’s Court of Chancery on Nov. 17 by Strategic Point’s holding company, Progressive Financial Strategies LLC, four days after New York-based Focus announced a recapitalization and its first acquisition in more than a year.

Focus, a so-called roll-up firm that buys 40% or more of a wealth management firm’s revenue in return for cash and equity, would have to respond by tomorrow under normal schedules in the Delaware court, lawyers said.

Loretta Mock, a spokeswoman for Focus, declined to comment.

By filing under seal, Strategic is likely showing the court that it is flexible about allowing Focus to redact confidential information before filings are made public, according to lawyers who aren’t involved in the case. Both Focus and Progressive Financial Strategies are incorporated in Delaware.

The decision to sue indicates that Strategic Point is unhappy with recent events at Focus and may want to force a settlement that could allow it to back out of its relationship with the firm, speculated bankers who have worked in the past with wealth management mergers.

The bankers, who declined to be identified because of past or potential future relations with Focus and its partner firms, said that the action could have far-reaching consequences if other Focus affiliates join Strategic Point in its apparent attempt to find fault with the company’s disclosures about its market value and other financials.

Leaders of the 16 other partner firms contacted in recent weeks have either declared support for Focus chief executive Ruediger “Rudy” Adolf and his management team or didn’t respond to calls seeking comment.

“I’ve filed on behalf of Progressive Financial Strategies an action in the Court of Chancery seeking access to the books and records of Focus,” said David Brochu, president and chief executive of the Providence, R.I.-based firm. Because of the seal, he said, he couldn’t elaborate.

Strategic Point, which manages about $502 million, according to RIA Database, was one of four “founding partners” that Focus unveiled at its active launch in February 2006. At the time, Mr. Adolf said that his firm aspired to have a stable of more than 30 wealth management firms within five years.

The market and economic crises of 2008, however, took their toll on Focus. It labored to help its poorer-performing partners replenish lost revenue while it sought new equity capital to help service past debt and continue to make acquisitions.

The prospect of Focus’ managers’, partners’ and outside investors’ cashing out their equity stakes in a public offering also became more remote as equity markets collapsed.

Focus this month said that it has arranged a new $50 million infusion from two private-equity firms (including $15 million from Summit Partners, its initial backer), extended a bank facility that was coming due and negotiated to buy Joel Isaacson & Co., a New York financial planning firm. Some people familiar with the deals said that equity was issued to the new backers at a significant discount to previous deals and that Mr. Adolf and his management team negotiated more shares for themselves to offset dilution.

E-mail Jed Horowitz at [email protected].