Illustration by James Bennett
ohn Bowen's feet were already getting a bit cold about this whole thing. Sure, they'd seemed like smart people on the phone, and yes, he did need to scout for merger partners for his asset management firm, Reinhart Werba Bowen. But this was ridiculous: Here he was, in February, on a plane from the balmy, palm-tree climes of California, en route to the Canadian province of Manitoba, where the current temperature was barely up to a Siberian -23 degrees. He peered out the window. All he could see was tundra, tundra, and more tundra, flat and frozen as an ice rink, and looking like it extended pretty much forever - a straight shot between here and a candy-cane-striped sign marked North Pole, with nothing but igloos and polar bears between.
The Great Bright Hope of his firm lay here? Bowen took one more look out his window and started booking a seat on the next flight out.
But Bowen's cold feet - both literal and figurative - thawed fast. At Assante Corporation's headquarters in downtown Winnipeg, he realized that these upstart Canadians were building just the kind of company he'd been hoping to build: one that served wealthy clients by rounding up all kinds of financial and personal services under one umbrella, promoted the concept of advisor as client's chief financial officer, standardized money management with a core of index-index-based investments, and believed in owning all the pieces of the financial services puzzle.
He also realized that Assante Corporation was way ahead of him - of "lead, follow, or get out of the way," his options were the second two. His firm was acquired by Assante that spring, in May 1998.
That purchase was only one of Assante's many recent attacks of acquisitions fever. For a company that advises its clients to financial prudence, Assante has been breezing around the continent on one heck of a shopping spree, snapping up nearly 20 firms in the past four years and planning to buy dozens more. Assets under management have jumped from $500 million to nearly $4 billion; assets under administration have exploded from $1 billion to more than $24 billion. Assante's shopping cart now contains financial advisories, business management firms, broker/dealers, and sports agencies. The client list, which includes stars of the silver screen, small screen, and sports stadium, is a name-dropper's dream: Tom Cruise, David Letterman, Troy Aikman, Steve Young, to name but a few. The advisor force currently numbers more than 2,500. Canadian offices dot the countryside from Moose Jaw to Yellow Knife, Medicine Hat to St. Bruno de Montarville; its offices south of the border, at least for now, are clustered in southern California.
The acquisition of Bowen's firm was supposed to give Assante a jumping-off point into the United States marketplace, with RWB the backbone of Assante's U.S. asset management. And it did, sort of. While the company has had some success acquiring business management firms (companies that handle bill-paying and Porsche-buying for movie stars) and sports representation firms, independent financial planning practices are proving harder to recruit. Last fall, after 80 conversations with advisors, Assante had hoped to have 20 U.S. financial advisory "founding partners" signed on by March. The 20 firms would then provide the feedback and guidance to shape the company's future U.S. acquisitions.
Yet because of what might be called an underwhelming response (read: no takers) that date has now been pushed off until summer. The reason? Independence. It seems financial advisors in this country don't want anybody cramping their style.
Until now, Assante has purchased 100% of the firms it has acquired - a formula that worked well with the Canadian firms of all types and the U.S. sports representation and business management firms.
Those transactions included a combination of cash, stock, and stock options in Assante itself, with the firms' principals able to earn millions more in bonus payments if certain performance goals are met in the subsequent five years.
Assante had expected to do the same with financial planning firms in the United States. "We were going to do a pure acquisition where the advisors would be employees," says Bowen, now wearing a new hat as the head of Assante's U.S. financial advisory acquisitions. "But they're very entrepreneurial, and they felt they wouldn't have the proper control to best serve their clients." So Assante went back to the drawing board. It didn't have much of a choice. "Remember, these are individuals who have been very successful," says Bowen. "They don't need to do this."
While most advisors don't necessarily need to merge, sell, or affiliate with anybody, there's no denying that they're thinking about it. Everyone from accountants to stockbrokers to Web sites seems to be offering, or planning to offer, financial advice. And all that competition makes "strength in numbers" sound increasingly appealing.
So Assante regrouped and sharpened its offer, proposing to create partners instead of employees. The big question: Has the company really discovered the magic formula to bring independent advisors into an institutional setting?
Bowen's new plan is designed to accommodate an independent streak. He's a little sketchy about the details, but he says that after considering buying total or partial ownership of the advisory firms, Assante has come up with "a creative way to effectively buy part of the firms' revenue stream" and keep the advisor at the helm. "We will create a strategic alliance/licensing agreement with the advisors," says Assante CEO Martin Weinberg. "They will continue to operate independently, but in association with us." After many additional meetings with planners and company lawyers, he now expects to have his 20 firms - and their accompanying $5 billion in assets - on board by mid-year.
In the movies, gun-toting robbers always want "your money or your life!" Assante wants both from its clients - to manage them, that is. "Life management" is Assante's catchphrase. All clients receive wealth management services, including estate, retirement, and tax planning. Depending on who you are, what you do, and how much money you've got, however, Assante advisors will handle everything in your life that's even remotely financial. Need someone to get that leak in your garage fixed? Negotiate your next multimillion-dollar contract with the Dallas Cowboys? Mow your lawn? Hire your maid, fire your maid, or find you a new oceanfront home with 32 rooms and space for your yacht? No problem: That's why it's called life management.
Weinberg calls his strategy the "Mayo Clinic approach," because it brings experts in various areas together under one roof. The firm itself was born of a merger - Toronto financial planning firm Equion Group joined with Winnipeg investment management firm Loring Ward Investment Counsel in 1995. But it's not just about consolidation, says Weinberg firmly: "We are not a roll-up firm." The initial merger was characteristic of Assante's strategic alliances: "By marrying the manufacturer - that is, the investment management firm - with the distributor - meaning the broker/dealers and mutual fund dealers, we not only had the Mayo Clinic to provide solutions, we had the shelf space," says CEO Weinberg, who founded Loring Ward in 1988.
These days, Assante is aiming to provide wealth management services and/or products to firms that either haven't provided them until now (boutique accounting or law firms, sports agents, entertainment figures' business managers), or want to be able to provide them more efficiently (financial advisors). The firms can then, in theory at least, provide new and/or better services to their clients, and Assante finds its way into new crops of clients - not to mention a good bit of profit.
Assante has created its network by purchasing and affiliating with companies, rather than building from the ground up, for two reasons. First, it's hard to get top people to jump ship from the firms they've built up over many years. It would have been virtually impossible to get sports agent Leigh Steinberg, the real-life model for Tom Cruise's character in the 1998 film "Jerry Maguire," to completely bail out of his powerful, respected firm. Convincing him to sell the firm and stay on to run it proved easier.
The second reason is the risk involved. "Say you want to hire an estate planning attorney into your financial advisory firm," says Bowen. "That attorney is going to cost $300,000. It's a Catch-22: You need the attorney before you can offer the service to clients, but you need enough clients who want the service before you can afford the attorney." To avoid the chicken-or-the-egg dilemma, Assante just buys the whole henhouse. Buying a firm with most of the pieces already in place - the specialized service, a list of clients that want it - and then tossing in the wealth management service on top is a lot easier on a buyer's nerves.
Existing management is generally kept in place, and so far, at least, the firms' names haven't changed. Every press release announcing a purchase repeats the mantra, "There will be no change in day-to-day management." Though that might seem counterintuitive - if nothing changes, why bother? - Assante asserts that it makes sense. Says Mickey Segal, of recently acquired U.S. business management firm NKS Business Management, "For them to come in and make management changes in areas that they don't know about doesn't make a lot of sense. They're acquiring the leading firms in various areas, then allowing them to continue doing what they do, with the help of Assante's products and expertise."
So what benefits does Assante offer to advisors in the United States?
Equity. "Many of the advisors we're talking to are frustrated that they haven't built enough equity in their businesses," says Bowen. "They want to build up equity both in their own company as well as in an enterprise greater than their own."
The problem is, many firms are overly dependent on their principals and have not systematized their services to the point where, if the principal retired or keeled over, business would continue. In buyers' eyes, that makes the firms far less valuable. "If the owner has not created a commercial enterprise by delegating to other people, then that's a very, very tough practice to transfer," says Mark Tibergien, a principal at Moss Adams LLP who specializes in practice valuation. "For a buyer, the issue is, 'Am I buying a business or a book of business?'"
Consequently, most advisors figure their firms are worth more than they are. Among the more than 250 firms he's worked with, Tibergien has found that there is a "pretty inflated perception" of value. "If you only have a book of business to sell," he says, "you may not have as great a value as you thought."
By joining forces with Assante, an advisor can increase the value of her own firm by systematizing using Assante's products and services while also "participating in" (translation: getting a slice of) the growth of Assante itself.
Whether that is a good idea, however, depends both on the value of the Assante services to the firm and the value of Assante's stock. Last summer, the Canadian firm went public on the Toronto stock exchange at $9.50 per share. By early March of this year, the price had stumbled to $6.50. Company officials say the stock is undervalued because the company's structure is complicated and hard to understand and because the firm hasn't done much in the way of self-promotion.
But the faltering stock price raises an important point. Says Tibergien: "You have to ask the fundamental question: Is this a stock that you would buy if it weren't for the fact that you were exchanging ownership in the company? If you just happened to be observing the industry, would you say, 'Wow, that's a company I'd really like to buy?'"
Exit strategy . . . eventually. There are essentially three types of buyers of financial advisory firms: consolidator buyers, who profit from accretion, buying up firms with the intent to go public; strategic buyers, who want to share resources, expertise, or clientele among the acquired firms; and individual buyers, i.e., Chuck and Mary's Financial Planning down the street. "The only type of buyer that provides a bona fide exit for the owners is the individual buyer," says Tibergien, "where they either groom someone to take over the business or identify another practitioner who could handle their book of business. Then the advisor can ride off into the sunset within six months to a year." The other two kinds generally want the advisor to stick around, particularly if the firm isn't systematized into a commercial enterprise. After all, if they buy and the advisor bails out, what have they bought?
Not surprisingly, Assante wants the advisors to stick around, too. The advisor is another avenue for their products and services. But there are provisions for succession. Advisors will have a put option, so that at the end of the next five years, they have the right to sell their firms to Assante at a previously negotiated multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). In the case of death or disability, the firm could be sold before the five years are up. Says Bowen, "We're looking for people who love this business and are unlikely to sell, but want a plan for succession in the event of death or disability, and also want the assurance that if they wanted to, they could retire, too."
Investment management service platform. "The concept for this entire firm came from the realization that money managers will regress to the mean, and the only stars are in the sky," says Weinberg. "Most people tell you how well they did. We don't." The typical Assante portfolio has a core of quantitative, index-based investments that make up 40% to 60% of the portfolio. The funds are designed to minimize taxes or other risk factors. The balance of the assets are in actively managed funds or, in the case of wealthier clients, in individual securities. Assante's asset management firm, Bowen's RWB Advisory Services, handles asset management and portfolio reporting for U.S. firms.
While there are no requirements for advisors to use Assante's proprietary products (advisors have a contract stating that they can use essentially whatever investments they want), the company's goal is to have 40% of client assets in its investment products within the next three years. Assante currently has seven quantitative and two actively managed proprietary funds in the U.S. All nine are managed by third-party fund subadvisors, which Assante can hire and fire in response to performance.
"Instead of having 2,000 advisors switch 100 clients into or out of an investment," says Weinberg, "we just do it once for the whole pool." Making a switch at the subadvisor level avoids the tax that would be created by selling one fund and buying another. It's also a more profitable set-up for Assante. "Instead of buying a manager's fund for 100 basis points, why not hire their talent for 15 basis points inside our fund?" says Bowen. "We can then capture some of that margin that in the past was going to the manufacturer." Assante is currently developing what U.S. advisors have requested, such as a venture capital "fund of funds."
The presence of actively managed funds and individual securities is a departure from Reinhart Werba Bowen's historically zealous dedication to index-based investing. Have they lost the faith? Bowen says he's still a true believer (as does Weinberg, for that matter). What has changed is the certainty that clients can always be convinced. "We show the clients why we believe what we do, but many of them still believe that they can consistently outperform these quantitative funds," says Bowen. "In that case, our job is to give them the best opportunity to try, and keep them from hurting themselves."
There's little question that Assante's "packaged approaches" to investing will take work off advisors' desks and increase their efficiency. The question, then, becomes: Is this the approach you want? "If you can't, or if you don't want to," says Tibergien, "what have you accomplished?"
In the end, the question of merging, selling, affiliating, or otherwise joining forces with another entity, comes down to a question of basic math: Does one plus one equal more than two? The jury is still out on Assante's new equation, as well as those being proffered by other firms. The interest is there, among both buyers and sellers, but many are still choosing to wait and see.
Oh, and by the way, if you do join Assante, they promise that you'll never, ever have to move to Manitoba.