Keys to a Successful Rollup Strategy

Put ‘em on a watch list–these guys are going places.

Brian Parker and Derek Holman are co-founders of EP Wealth Advisors, a Los Angeles-based firm with $1.35 billion in assets under management with a focus on financial planning and investment management. That’s right, in an industry where disciplines align like an East Coast/West Coast rap war, they perform both in-house, and are succeeding spectacularly. Did we mention they’re both well shy of 40 years old?

“The financial planning leads to the investment management,” Holman says. “Too often the investment manager will do the risk tolerance and allocation and then run off and invest from there. The problem is the client might say they want an aggressive allocation, but not really understand what that means.”

“From sitting down with our clients, what we find is that it’s not about whether or not to allocate to large-cap growth, it’s about whether they’ll be all right in the future,” Parker adds.

Another big reason for their success is a rollup strategy that’s taking advantage of the current economic and regulatory environment–one that’s disproportionately affecting smaller RIA firms.

“Of the $1.35 billion, about $250 million is from rollups, so it’s a significant portion of what we do, but not everything–we don’t ignore organic growth,” Holman explains. “What our rollup strategy has allowed us to do is to expand into markets we might not have tapped otherwise. A number of the firms have come with untapped referral sources that have greatly befitted us.”

“It’s difficult for smaller RIAs to differentiate themselves, and regulation is disproportionately affecting them,” Parker adds. “Larger RIA firms have a distinct advantage, which smaller firms are beginning to realize.”

But it’s not all “wine and caviar,” Holman says. While many smaller RIAs think life will be easier as part of a rollup, it’s a big lifestyle change, and it’s a slower process than many realize.

“A few of our marriages have gone right to the altar, only to be called off,” he notes. “The smaller RIAs know they have to do something in order to survive, or someone has told them they need to do something, but they can’t get over that hump to actually do it. It’s very emotional for them.”

So what, specifically, are they looking for in the firms they approach? A good fit from an investment and cultural standpoint, to start.