Joseph Heider isn't just expecting wealth advisers to retire in coming years.
He's banking on it.
Mr. Heider in January founded Cirrus Wealth Management in Independence, Ohio, after demerging his Dawson Wealth Management firm from Rehmann, a Michigan-based financial services company.
At age 60, Mr. Heider has no immediate plans to retire. Instead, he plans to use the graying of the wealth management sector's financial advisers to his advantage by acquiring the books of other smaller money managers to grow his latest business.
Cirrus today has a staff of five collectively advising on about $300 million for 300 clients, and the business is laying the groundwork to begin acquisitions early next year.
Mr. Heider said he is in talks with three groups around Cleveland and western Pennsylvania that each represent about $250 million in assets.
(More: State regulators to require continuity plans)
At 2015's close, Mr. Heider expects Cirrus will make at least $2 million in revenue.
Cirrus will face strong competition in growing through acquisitions as similar groups across the country also set sights on aging advisers mapping their way into retirement.
Nonetheless, Mr. Heider plans to grow Cirrus to $10 million in annualized revenue in three to four years, anticipating “we will need to bring in six to seven adviser groups to do that.”
BETTER OFF ALONE
A licensed pilot and self-described adrenaline junkie who bungee jumped for his past birthday, Mr. Heider named Cirrus after clouds suitable for smooth flight.
In the late 2000s, Dawson Wealth Management, cofounded by Mr. Heider in 1992, was planning an accelerated growth path.
The company was in talks with private equity groups, Mr. Heider said. But as those talks fizzled, Rehmann entered the picture looking to replicate in Michigan and Ohio the mergers Mr. Heider's team had already completed or had on the radar. The two merged in 2010. Mr. Heider joined as a partner.
“The whole idea was we'd lead the way in accounting firm mergers and look at wealth management acquisitions,” Mr. Heider said.
But that relationship didn't mesh as envisioned.
Mark Bonhard, a 72-year-old financial adviser at Cirrus who first began working with Mr. Heider at Dawson and followed him to Rehmann, said Rehmann operated “more like a bank.”
The outfit wasn't suitable for producing rainmaking advisers. Most business referrals were coming directly from CPAs.
Meanwhile, Rehmann never found a CPA partner in Cleveland as expected, Mr. Bonhard said. Mergers, for “various reasons,” just didn't happen, Mr. Heider added. And the pay structure wasn't preferred for the former Dawson team — top-producing advisers had income capped inside the CPA firm.
“The elements of the cultural mismatch were there,” Mr. Bonhard said. “It was an excellent firm. It just wasn't a good fit.”
SEARCHING FOR ADVISERS
Cirrus is looking for advisers generating at least $500,000 and above in revenue who are considering retirement.
The firm wants to help those people craft succession plans for graying money managers looking to gradually work their way into retirement.
“We're looking for the adviser who still has a passion for the business,” Mr. Heider said, “but ... would like to slow down.”
Indeed, the pool of possible acquisitions is deep.
According to 2014 research by Boston-based Cerulli Associates, which specializes in global asset management and distribution analytics, almost one-third of advisers plan to retire within the next decade while an estimated 200,000 advisers may retire by 2022. The average age of advisers is about 50, while 43% of all advisers are 55 or older.
(More: Price tag is only one factor to consider when acquiring a firm)
Many wealth managers are taking a similar approach, creating stiff competition for acquisitions.
“As advisers begin to retire, a larger number of sellers will enter the market,” said Kenton Shirk, associate director at Cerulli, in an October 2014 report.
“Practices that are heavily weighted with older clients are less desirable because they have less potential to generate future cash flow. Retired clients are also inclined to deplete asset balances as they withdraw money for living expenses.”
Mr. Shirk also notes a trend that advisers in many cases are asking for triple the value of revenue generated by their books.
Mr. Heider is not dismayed by the challenges.
“I'm still competitive, I still enjoy the game, and I still love this business,” Mr. Heider said.
“I get a thrill out of working with clients directly and running the business. And I think if you still have the drive at whatever level you're operating at and are still enthused by it, then age certainly has a role, but I don't look at it as a limitation at this point and time.”
Jeremy Nobile is a reporter at sister publication Crain's Cleveland Business
