Your Next Partner?

With a $125 million bankroll, Jessica Bibliowicz o

A slew of consolidation firms targeting advisors have come and gone over the past few years, with only a sparse number competing today. Of those, National Financial Partners, run by Wall Street veteran Jessica Bibliowicz, is the one to watch.

Since its launch two and a half years ago, New York-based NFP has snapped up 90 independent investment advisory firms serving wealthy individuals and corporations. No other competitor has moved at such a pace, but there is a clear reason. Bibliowicz, 41, is using her ambition and smarts--and her blue-chip backers--in hopes of gaining enough market share to push her firm into a speedy IPO or maybe even an outright sale of the company to another financial player. "She has always exhibited an ability to take a vision and bring it to its conclusion," says Mike Downey, former CEO of Prudential Mutual Fund Management and Bibliowicz's boss when she was his director of sales and marketing back in 1992. "She has the ability to motivate people."

In laying out her ambitious plan, Bibliowicz is sure to run into some new competition. With banks, insurance companies, and investment firms gobbling each other up in the wake of Congress's repeal of Glass-Steagall, investment advisors and broker/dealers are hardly immune from takeover themselves. Between 1995 and 1999, only 57 financial advisors and investment managers sold their practices, estimates Tiburon Strategic Advisors, a research firm in Tiburon, California. But between 2000 and 2004, Tiburon predicts there will be 500 of these sales. In 2000 and the first quarter of 2001 alone, 39 transactions occurred, nearly matching the number of firms sold between 1995 and 1999.

What does NFP have that competitors don't? For starters, the firm is backed by $125 million in capital from Apollo Management, one of the best-run venture capital funds on Wall Street. Apollo's seed money is helping NFP create a nationwide financial services distribution network by consolidating high-net-worth estate planners, corporate benefits firms, insurance brokerages, and investment firms.

In exchange for selling their firms, independent advisors get cash and stock in NFP, while remaining entrepreneurs. The firms then gain access to new

Jessica Bibliowicz
Age: 41

Family ties: Daughter of Citigroup Chairman Sanford I. Weill. Married to Natan Bibliowicz, an architect Mother of two sons

College: Cornell University

Hobbies: Running, tennis, going to baseball and football games

Charities: Chairman of the northeast chapter of The Boys and Girls Club of America

Home: Westchester County, New York

technology, best-of-breed products, and capital at favorable group rates--as well as a chance to diversify their revenues through cross-selling.

"A lot of [independent advisors] have put 10 to 15 years' sweat equity into the business, and yet at the end of the day there wasn't any enterprise value created," Bibliowicz said in a recent interview in her sleek office overlooking Central Park. "In some cases, without any access to equity or capital, it's very difficult for them to create the succession plan that will allow their business to go on into perpetuity."

Besides a huge capital infusion, NFP is playing its other trump card--Bibliowicz. Apollo lured her in 1998 from her post as president of John Levin & Co., a New York-based registered investment advisor, to serve as NFP's president and CEO. "I loved the [NFP] concept, and I felt comfortable with how it was capitalized," says the native New Yorker.

On Wall Street, Bibliowicz is known for her investment savvy, leadership skills, personal panache, and ability to run a tight ship. She was also born into the business. The daughter of Citigroup Chairman Sanford I. Weill, Bibliowicz's professional and personal status has gained her many a watchful eye as she climbed the Wall Street skyscrapers over the past 20 years. But like an actor trying to shake the stigma of being born to a famous parent, Bibliowicz, too, has had to prove throughout the years that her rise in the business world wasn't tied solely to her familial roots. Burt Greenwald, a Philadelphia-based financial services consultant, notes that "she had a difficult cross to bear" when she was executive vice president of Smith Barney's mutual funds. Bibliowicz had moved from Prudential to Smith Barney at the time her father was chief executive of the brokerage firm's owner, Travelers.

At Smith Barney, Bibliowicz found it hard to shake the label of being Sandy Weill's daughter. But Greenwald says that Bibliowicz has demonstrated that she has her own vision. Says Greenwald: "She has very incisive, strategic insight" into the fast-changing financial services marketplace. "The fact that she is Sandy Weill's daughter is an afterthought now," adds Chip Roame, managing principal of Tiburon. "She's a smart cookie."

Indeed, under Bibliowicz, NFP seems to have assembled the elements that a consolidation firm

Been There, Tried That
In the fall of 1999, the top brass of Winnipeg-based Assante Corp. were anticipating some serious shopping. They'd bought dozens of financial advisory firms across Canada. Now it was time to tackle the fertile ground to the south.

The original plan was to add 20 U.S. planning firms by early 2000 to the California asset management firm, RWB Advisory Services, which was already in the shopping cart. But spring and summer came and went, with no new purchases. Finally, last fall, Assante threw in the towel. It refocused its attentions on the 400 advisors who had already been using the asset management services of RWB, now Assante Asset Management. Instead of shopping for new firms, the company concentrated on beefing up its turnkey asset management platform. "It was a great move," says Alex Potts, vice president of Assante Asset Management. "The advisors understand that we're serious about serving them."

What made the consolidation plan run aground? "The multiples on the advisory firms were getting up to the point where it wasn't attractive to buy them," says Potts. "And Assante hasn't been one to shove product down people's throats, either." The logistics of incorporating purchased firms into Assante's network also proved more complicated than expected. Says Potts: "The acquired advisors were going to come in under our broker/dealer, but you can't set up a broker/dealer that's going to cater to part of their needs. You've got to go all out and do it all. And each one of the advisors was so different that acquiring them became a really, really expensive proposition."--Karen Hansen Weese

needs in order to thrive in the current environment, says Mark Tibergien, Seattle-based director of business succession services at Moss Adams LLP. Firms need capital, strong management, and a plan to create liquidity for stock in a relatively short period, he says.

NFP's model differs from traditional roll-up firms (like Waste Management and MedPartners, which have both gone under) that buy public companies, combine them into one entity, take them public, and then gain earnings growth through cost-cutting. "We never allow the word roll-up to be used as it relates to us," Bibliowicz says. "The difference in our model is that we are in a market that is growing; the high-net-worth or corporate market is the place to be." A lot of market hype usually surrounds roll-up firms, she says, "but eventually there's only so much you can cut out of costs, and then people aren't seeing the growth they want to see and the thing just fizzles."

Tiburon's Roame says NFP's model is a combination of a financial buyer and a strategic buyer. Financial buyers acquire firms and resell them. In that regard, NFP is financially driven; Roame estimates it is paying four to six times cash flow for firms, and wants to essentially resell for eight to twelve times cash flow when NFP goes public. But NFP is also a strategic buyer because it is acquiring estate planners, corporate benefits firms, and investment firms, and helping them build revenues from each other's clients and niche specialties.

The failure to create revenue synergies, and a poor strategy, are what caused consolidation firms like Wealth Trust, Investment Advisor Group (no relation to this magazine), Investment Managers Inc., and Timber Ridge to bite the dust last year, Roame says. Canadian-based Assante (see page 42), meanwhile, attempted to create revenue synergies by getting firms to sell its proprietary products. The firm acquired several sports management and business entertainment firms in the United States, but failed to draw in any U.S. planning firms. Some of NFP's member firms were courted by Assante, but chose NFP instead. Assante is now focusing its future acquisitions on the Canadian marketplace, and has changed its business focus from purchasing firms to providing asset management services.

With no proprietary products of its own, NFP pulls from a broad array of best-of-breed products. "We don't manufacture anything, which leaves us very neutral and very focused on the client," Bibliowicz says. "There's no sense of conflict of pushing one product over the other, which is a nice way to run a business." Through its broker/dealer, NFP Securities Inc. in Austin, Texas, NFP distributes an American General private placement variable life product, which includes a hedge fund of funds product by Peyser & Alexander Management Inc., an NFP member firm, and mutual funds from American General, The Hartford, Fidelity Investments, and AIG.

Apollo is betting NFP can continue to beat back competitors such as Highland Capital Holding Corp. and Centurion Financial Advisers (see page 44), and draw in quality advisory firms, by leveraging Bibliowicz's credentials and those of NFP's sterling management team. That team includes NFP Chairman Rob Rosen, Apollo's point man, who has extensive experience in investments and public companies and who worked for Weill in the 1970s and '80s. Mark Biderman, NFP's executive vice president and CFO, has more than 30 years' experience in financial services. "We had the chance you don't always have, which is to build a management team from de novo, of people you respect, and want to be in business with," Bibliowicz says. "You don't get that many shots in your career." The experienced management team is "extraordinarily interactive," she adds. "Battles happen right out there in the hallway."

The Last Lone Ranger?
National Financial Partners isn't alone in eyeing independent advisory firms. Banks, CPA firms, and others are also riding the takeover trail

Mary Moore occupies a unique position in the investment advisory business. She is searching the country for practices that will make good acquisitions for Centurion Capital Management Company. When she visits a prospect, "she talks about how hard it will be for firms to compete in the future, succession planning, and the great opportunity that today's environment offers," says Jerry Dipoto, president of La Jolla, California-based Centurion Capital and its Phoenix-based backer, Centurion Trust Company. "It's really not a hard sell to make with everything going on."

Indeed, with the advisory marketplace as fragmented as a brand new jigsaw puzzle, there are opportunities galore for buyers, and risks for the planner who remains solo. National Financial Partners is by no means the only player in the consolidation game. "It's really remarkable what you're seeing," says Mark Tibergien of the Minneapolis consulting firm Moss Adams, which assists buyers and sellers of advisory firms. "You have CPA firms, large advisory firms, and even banks buying up small practices across the country." Ken Savino of the East Hartford, Connecticut asset management practice Savino, Sturrock & Sullivan said that he and his partners were considering the proposals of 20 suitors before deciding on Atlanta-based Highland Partners last year.

The opportunities for buyers and sellers alike are indeed many: greater efficiency and new revenue streams being just two. Yet it's also worth noting that at least one advisor heralds the recent buying spree as an apocalyptic omen for the small advisor in general. "The days of the Lone Ranger are gone," says Ronald Keleman of The H Group, a planning firm in Portland, Oregon. "If you don't find a larger partner then you're risking being left behind."

Why does everybody want a piece of the advisory business? Millionaire families in the U.S. jumped from 3.4 million in 1995 to 7.2 million in 1999, and the amount of wealth to be passed from one generation to the next may be as much as $130 trillion over the next 30 years. "There's more wealthy people walking around than ever before that need advice," says William Swan, president and CEO of First Niagara Financial Group. "If we [banks] don't stand up and realize there is an opportunity, we are missing the boat."

Not all advice is the same, however. Synovus Wealth Management Group bought the Atlanta-based financial planning firm Creative Financial Group last year even though Synovus, as a regional bank, already had an army of trust officers and full-service brokers at its disposal. "The fee-based advisor that caters to all of a client's financial needs is the best way to access the growing high-net-worth individual market," says Synovus COO William Perkins. "Good brokers have always functioned as advisors, but there is a somewhat negative perception that has developed based on how the broker gets compensated."

Generating new revenue opportunities is also behind some deals. Swan, for instance, notes that the banking side of Niagara Financial has been able to make loans to high-net-worth clients served by its advisory business. "The opportunities for cross-selling are amazing," he says. Or take the Birmingham, Alabama-based CPA firm formerly known as Williams & Taylor. In 1998, the firm hired a CFP and opened an adjoining investment advisory business. Within a year, the new practice had gone from zero to $100 million in assets under management. "That's what happens when you couple a financial advisory firm with a CPA's client base," says Joe Honeycutt, 53, who is a partner in the High Point, North Carolina CPA firm Dixom Odom, which merged with Williams & Taylor in December 1999.

Honeycutt says Dixom Odom tried to duplicate such success with its recent purchase of the Greensboro, North Carolina, advisory firm Avante Garde Financial Services. "We're trying to direct our CPA clients to the advisory business and vice versa," he says.

Synergy can work the other way around as well. Michael Stewart, the former owner of Niagara Investment Advisors, says banking officials now push his services. Last year, for instance, he says that his firm grew 70%, with 12 percentage points of that growth coming from bank customers. "That was in the first year," he says. "I think that number will grow to 20% this year." Or take Doug Hesse of Hesse Financial Advisors in Roswell, Georgia, which was purchased last year by Centurion Capital. Since the purchase, Hesse has begun using his parent company's money management services. Hesse also says he intends to move money from Capital Trust Company of Delaware, which he had been using in the past, to Centurion's trust unit.

Despite the growing number of mergers, the advisory market is still largely made up of single practitioners and small firms. American Express estimates there are 10,000 advisory practices in the U.S.; Tiburon Strategic Advisors figures the number at closer to 18,000. In such a fragmented industry, huge inefficiencies exist, making for a ripe opportunity for consolidation. Paperwork alone is "a major headache," says Jack Hinds of the Lakewood, Colorado-based Hinds Financial Group, which was also purchased by Centurion last year, "yet crucial to the business."

Since being taken over by Centurion, both Hinds and Hesse say that back-office functions are now handled by their new owner "We take care of all the client records, accounting, accounts payable, receivables, compliance, and billing," says Jerry Dipoto of Centurion. "The prior owner is positioned to do what he does best, which is working with clients and bringing new ones into the business. This is the structure of the future."

Many purchasers--Centurion included--are also handling the technology aspects of the advisors' business. Hinds, for example, used to spend $100,000 annually on technology before being bought out by Centurion, which spent five times that last year alone. At Highland Partners, which has bought some 30 advisory firms over the past three years, a centralized technology team stays abreast of the latest hardware and software developments and then makes decisions for all the practices in the network. The team is also available by phone to resolve any day-to-day problems like servers or networks going down. "We have two IT people now and it's soon to be three," says Savino. "I don't have to worry about this anymore. It's all taken care of for me."

Margin compression is also driving mergers. Take Savino, who says he saw his fee structure shrink from 2% to 1% over the course of the last ten years. "This will only continue," he says. "These large wirehouses and trust companies can achieve savings through scale that could translate into a better price for the client."

So how long can independent advisors hold out? Ask Ernie Caruso of the Utica, New York, planning firm Caruso, Mclean and Company, whose firm is located only miles away from Stewart's practice as well as H. Griffith & Company, another advisor that was recently taken over. Is he feeling pressure now? "Not at all," he says. "There's plenty of room for the independent advisor." And five years down the road? "There will be pressure," he adds. And, oh yes, "We're already in talks with some larger firms." --By Mike Jaccarino

Staff Editor Mike Jaccarino can be reached at mjaccarino@ia-mag.com.

NFP's management is a powerful selling point. "The single most important reason [we joined NFP] was Jessica," says Gary Droz, principal at Innovest Advisors in Pittsburgh. "She is the most dynamic, smartest, connected person we could have chosen," he says. "I like having Apollo and Jessica running the show. The others [consolidation firms] don't have a game plan. NFP understands how to accomplish a national structure."

NFP's original goal was to bring in as many as 300 firms with $1 billion worth of market value in five years, before taking NFP public. But NFP has since backed off that 300-firm target. "It will be closer to 200 firms by the end of the five years," says Marc Rowen, an Apollo partner. One reason NFP is targeting fewer firms: NFP's transactions have gotten larger, which will help the firm gain market value with a smaller number of businesses in its portfolio. Early in the acquisition process, Bibliowicz says, firms had between $1 million and $2 million in revenues. Today, newly acquired firms' revenues have jumped to $2 million to $4 million. "We will certainly cross 100 [firms] this year," she says. NFP has $260 million in total revenues, and $50 million in acquired earnings from its member firms. Another 50 deals are in the pipeline. "It's a challenge to always be out there on the acquisition side," she says.

Down the road, will Bibliowicz create value for Apollo and her acquisition partners via an IPO? Or will she sell NFP to someone else? Bibliowicz says she's not sure which way it will go. "It's the big, unanswerable question. We have always run the company to be an IPO," she says. "I can't tell you which path it will go . . . We don't think we would be forced into anything stupid." But Roame believes NFP's firms are "an exciting acquisition" for a large bank or brokerage firm that would want to expand its footprint nationwide. "Long before NFP goes public, a strategic buyer will buy them" at a better price than Bibliowicz could garner in an IPO, he believes.

Innovest Advisors' Droz says he's not worried about how the IPO-versus-sale debate plays out. "I don't think anybody associated with NFP cares whether they get an IPO or are acquired," he says. "Apollo won't let it go on for years on end without a liquidity event happening."

When NFP buys a firm, it purchases the rights to 40% of its net earnings, paying five times net in cash and stock. NFP's acquisition model is to pay 5 times pre-tax income before the owner's compensation. For example, if a firm has $2.5 million income, NFP would capitalize $1 million per year for $5.0 million. The capitalized amount is paid at least 20% in stock, and the owner keeps 60% of the annual income. But John Bourger, president and CEO of Brown Bridgeman & Co. in New York, says NFP is flexible in letting firms choose how much cash and stock they want. "Having gone heavily in stock," he says "I'm betting it will be [a] successful" IPO.

Apollo's Rowen says NFP is already ahead of its projected goals. NFP performed a survey of its member firms last year and found that its firms represent a trillion dollars in life insurance policies in force, and NFP has more than $10 billion in assets under management among its member firms. "There's no independent distribution system with as much national coverage as this firm," he says.

But the trick is to keep growing, and to add more investment advisors.

NFP's initial goal was to acquire an even mix of estate planners, benefits firms, and investment firms, Roame says, "but they got out of the box a lot quicker on the insurance side." NFP's first couple of acquisitions were huge insurance producer groups, like Windsor Insurance, a life insurance distribution firm; Partners Financial, a producers group; and Barry Kaye Associates, a Los Angeles financial planner that advocates insurance trusts for estate planning.

"There aren't enough true financial advisory firms in their fold," says Tibergien. "They have more insurance and estate planning and pension [advisors]." He says firms that are in a "wait-and-see mode" about joining NFP are "those on the pure financial advisor side."

But NFP can leverage Bibliowicz's experience in investments to draw in more investment advisors. "She's got the investments down pat," Roame says. "She knows investment-speak and the investment advisor market."

The fact that NFP is looking to acquire entrepreneurs, rather than firms that are exiting the planning business, is something of a conundrum, says Tibergien. "Many people look at the sale of their business as an exit strategy, but NFP is only looking at entrepreneurs." The biggest challenge in pulling in entrepreneurs is convincing them they won't lose control of their business.

That's what made Bourger of Brown Bridgeman & Co.--who has been running his own company for 20 years--think twice about joining NFP. "I asked myself: Are they really going to leave us alone?" But once he joined, he found that "they do leave you alone. You can run your business and network nationally with other producers." His firm specializes in corporate executive benefits programs, and "now we have an opportunity [to deal with clients] in Boston from another member firm."

Droz of Innovest Advisors in Pittsburgh agrees that selling a firm "is a difficult decision." But he decided his small firm needed to be part of a national corporation if it was going to get the intellectual capital, technology and continuing education that it needed to survive. "We get to understand who the other firms are and do cross-pollination," he says. Another crucial element is gaining access to technology platforms like the one NFP is building. NFP is creating "a data repository for consolidated reporting from any custody in the country," he says. "It would cost a fortune for me to do this." Most small advisors won't be able to "function three years from now without that [aggregation technology] because most wealthy clients have 20 accounts and you have to be able to consolidate these accounts."

NFP is also spending millions of dollars to build up its broker/dealer, NFP Securities Inc. NFP brought in Andersen Consulting to help it rebuild the broker/dealer, which formerly belonged to Partners Financial and was called Partners Securities. NFP is adding technology, staffing, and a product development team to the B/D, Droz says. "The staff has quadrupled, and they have a top compliance" team. Droz adds that NFP's brand recognition gives his firm more leverage when drawing in new clients and when dealing with vendors. "I have a much bigger story to tell."

Steve Kolinsky, principal with Kolinsky Hill Financial Group in Westchester County, New York, also needed to connect with a large national corporation in order to grow. Kolinsky's firm, which specializes in employee benefits, financial planning, and estate planning, secured capital from NFP so it could acquire two life insurance producers and an employee benefits firm.

For David Alexander, with Peyser & Alexander Management Inc. in New York--which provides family office-type services for clients in the entertainment business, writers, and high-profile CEOs--joining NFP provided the firm's two hedge fund products with increased distribution. "We had two funds of funds that have terrific long-term track records, and no distribution," he says.

Alexander's firm was approached by quite a few other firms, including a Fortune 400 company, but they chose to align with NFP instead. "We also liked the people [at NFP]. They're honest and smart."

In the end, Bibliowicz's biggest undertaking is keeping up with all of NFP's moving parts--acquiring more firms, while simultaneously getting those firms to work in a synergistic fashion. And she's the first to admit it's a daunting task. "It's very hectic," she says. "In the beginning it was sort of easy. We were just acquiring businesses. Now, we're acquiring, nurturing, and seeing businesses that can go beyond where they thought they could be. We understand that we will always be valued based on our ability to acquire firms, and on the ability of those firms we acquire to grow their business."

Bibliowicz says running a novice business like NFP will keep her on her toes, but she won't lose her balance. Her guide is advice that came from her father. " 'Pay a lot of attention to your best-performing firms because they can put more growth on the books and get more things done,'" she recalls Sandy saying. And as NFP grows, she's going to need all the advice she can get--but she'll be dishing out plenty as well.

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