United We Grow

Most interview subjects wait for the questions to be lobbed in by the journalist. Others–usually the Type A CEO type–launch directly from the introductory pleasantries into the talking points du jour. A third type, the rarest in my opinion, first ask questions of the interviewer. Turnabout is fair play, of course, but in Joe Duran’s case, you sense that he’s not trying to take the measure of the man so much as to understand the competitive environment in which this particular interviewer is operating. That’s a pretty good modus operandi for a fellow who runs a company that is a, to use a Moss Adams term, “serial buyer” of advisory practices. Before acquiring a “signature firm,” an advisory firm, or a “tuck-in,” where an advisor looking to exit the business finds a home with the signature firm, or a broker from a full-service firm that’s looking to go independent–United Capital Financial Partners has done 20 acquisitions so far, with an additional six Duran says are done but not yet announced–Duran and his team needs to understand the firm’s business model (each needs a minimum of $1 million in revenue) and its culture. It’s a cooperative of growth-minded advisors that United Capital is building, CEO and founding partner Duran says, into a national network of 50 regional firms with $500 million to $1 billion each in AUM that will one day go public.

“My biggest challenge” in finding new firms to add to United Capital, says Duran, “is finding cowboys who are willing to become part of the cavalry.” Duran spoke to–and asked questions of–Editorial Director Jamie Green in late May.

The challenge for advisors these days seems to be that it’s easier to be a money manager for a client, assessing a fee for managing that money, than to provide a range of services that are certainly needed by that client, but more difficult to be compensated for.

You’re hitting on something that’s a big deal to me–this idea of core competency. We’re on the phone every day with advisors with from $100 million to $800 million [in AUM], doing what we call an opportunity assessment. We benchmark them with other advisors who have from $100 million to $800 million. There are a couple of things that are consistent. The guys who are really focused on stock picking, that business is really, really changing. These are the old fashioned investment counselors: with one advisor who picks individual securities and builds the portfolio and services the client, and maybe there’s another advisor who does the exact same thing. But they do the implementation, they do the servicing. That type of investment counseling firm is really in trouble.

We just signed an LOI [letter of intent to acquire] with a firm that has about $1.5 billion [in AUM] that is structured that way. The reason they wanted to join us was that that they recognize that challenge, but they don’t know how to make the transition to charging for what the clients really want.

The advisory firm doesn’t understand whether the clients are with them for their stock-picking prowess or because of their understanding-of-the-whole-financial-picture prowess. The stock picking guys love to pick stocks, but their value is not that great…

We think there are huge shifts occurring. The first, which has mostly pretty much occurred, is this movement toward clients wanting a complete solution. The people who haven’t done that are like dinosaurs who need to find a way to evolve…The second is clients who want not just a complete investment solution, but want investments to be a subset of a plan…

That’s really important as we go from the [client] guys and gals in their 70s who are incredibly conservative and you have to fight them to spend money, to the baby boomers who are exactly the opposite, who are wildly optimistic, insanely believing that things will just work out with a level of spending that cannot be supported by the savings that they have.

For a baby boomer, having a real wealth manager is a life changer, because they’ll have retirements of 20 to 30 years, and they’re not accustomed to living within their means.

What’s unique about United Capital? You seem to be trying to institute some standardization with these acquired firms, with a group of people that, traditionally, at least, are . . .

Cowboys. The first big wave is people needing real advice in a systematic fashion and paying for it, because the investment business is being commoditized. The second big wave is that the break even point for advisors keeps creeping up. There is huge redundancy in our industry. Every firm with $200 million is doing the same back office, compliance, client reporting, all building the same models. While they’re customized uniquely for each office, the functions have to be done by everyone at the same time.