New York-based Focus Financial Partners announced its fifth deal this year for an advisory firm, this time with Hufford Financial Advisors, an Indianapolis-based RIA firm with $900 million in AUM and 700 clients in all 50 states which focuses on meeting the wealth management needs of small business owners, primarily dentists.
Details of the transaction, which closed on Sept. 30, were not disclosed. But Rudy Adolf (left), the former McKinsey consultant who founded and runs Focus Financial, said in an interview with AdvisorOne on Monday that the Hufford deal was similar to the other transactions that Focus has done. “We’re investing in 40% to 60% of the cash flows of the firm and our new partner runs the business as they have in the past under a contractual agreement, but they can benefit from the economies of scope and scale and expertise that they wouldn’t have had otherwise.”
In addition to these transactions, Focus also facilitates “tuck-in” transactions of smaller firms on behalf of their now 22 partner firms. Just two weeks ago, Focus announced a deal with Boston-based Colony Group.
Brian Hufford, who started a CPA practice in 1977 whose clientele was mostly dentists and then founded Hufford Financial in 1997 to provide more comprehensive investment, savings and tax services, said the Focus deal was the culmination of a five-year process, prompted in part by a common problem faced by many business owners and leaders: “You run into ceilings of complexity” that are a challenge to solve on your own.
“We had several suitors who approached us,” Hufford (left) said in an interview with AdvisorOne on Monday, but with Focus, “what appealed to us was the outside incentive to grow the firm while being sensitive to our business culture—we could grow without dramatically changing the culture.”
Hufford said that mulling over those offers from other suitors led him to the realization that “the easiest outcome for me would have been to just sell the company,” such as to a bank, “but that wouldn’t help clients and staff. I started asking myself how would my staff have a good future? I was concerned that if a large company acquired us, my staff would have become commodities. “We have a great staff,” he said, and that kind of sale “would have felt like a betrayal.”
By contrast, he says, the Focus business model is “committed to growing each partner’s firm, which means they have to build a new tier of leadership” in partner firms.
Adolf concurred with Hufford, saying that “every transaction that we’re doing has a big emphasis on the next generation of leadership; Focus doesn’t do exit transactions.” Hufford, he said, will “continue to be the leader for many years to come” while Focus will help Hufford “groom the next generation of leadership.”
Hufford said that during the five years of exploring his firm’s next step, as “I looked at the landscape from people wanting to acquire our firm” it was important to him to make a deal that would be “best for our clients, for me as the owner and for the staff. It had to be a win for all three—primarily for the clients.” For Hufford, 62, it was a “fiduciary issue, a stewardship issue,” especially for clients, to have a workable succession plan.
One of Hufford’s final due diligence steps, he said, was to participate in a Focus Financial partners meeting in Phoenix. “I wanted to see how they served clients, how they did prospecting.” At that meeting, he said he saw the same “basic core of putting clients’ interests before our own,” and also the use of “innovative practices” such as how to use social media or make the most out of your CRM system or gain access to best fiduciary practices.
“We never try to turn a successful entrepreneur into an employee,” said Adolf. Noting that Hufford built a “very successful business over time—we invest in a successful business with the premise that it will continue its unique approach in perpetuity.” Moreover, said Adolf, “as investors we’re interested in the growth of the partner firms.”
Focus itself has grown since its founding in 2006, and now has more than $45 billion in assets and 750 employees. While he would not telegraph any future transactions, Adolf did say that “2011 has been a very good year for us; we expect this to be our best year ever.”