Continuity Partners Group, the Cambridge Investment Research-affiliated company, has welcomed its first independent RIA, Gould Asset Management of Claremont, California, to its succession planning partnership.
Founded in 2010, CPG is a separate company within Cambridge Investment Group that has already attracted 168 former Cambridge reps as partners. Cambridge Chairman and CEO Eric Schwartz said Gould, which has $450 million in assets under management and is led by founder and President Don Gould, is only the first of a number of independent RIAs that are exploring joining CPG.
“We’re talking to about 10 other firms who’ve expressed interest,” he said in an interview Friday, and while he expects that “only a few” of those prospects will “likely join” the partnership, attracting the “huge, underserved” RIA community was a “logical step.”
Schwartz says that while “I built CPG for the senior partner” as a succession planning entity, ”the real beneficiary is the next generation.”
“Seven years ago I started thinking about succession planning” solutions for Cambridge reps who were contemplating retirement or slowing down, but Schwartz is quick to say that CPG is not for advisors who want a hasty exit, nor do they give up total ownership of their firms. RIAs who join “typically become” part owners of CPG, but retain their own RIA.
“We don’t require them to sell a controlling interest to us,” Schwartz says of CPG’s advisors. Instead, CPG provides capital to those advisors for both acquisition purposes and so that the next generation of advisors can eventually acquire control of the individual firms.
Unlike advisor rollup firms like United Capital or Focus Financial, CPG’s intent is “helping advisors grow their business; helping them transition it to the next generation,” Schwartz said. It does so not only by making loans to the firms for acquisitions and to the successors to the principals and founders, but also by supplying a number of business development and practice management services to the partners to help them to grow and increase the value of their firms.
“Our goal is very different” than the rollup firms’, Schwartz says. “The last thing we want is to run your practice from 2,000 miles away; we don’t want to tell you what to do.”
As for the rollup firms, “If you’re funded by venture capital or private equity, you’re driving to a five-year going-public” goal, and “the way they get there is by controlling things, lowering costs, making everybody use the same software package. There are demands on them to achieve certain returns. We’re not driving to a public offering.”
Preferred Succession Planning
Schwartz said that CPG learned that in contemplating a succession plan, most advisors do not want a quick exit with an immediate paycheck, but rather a “staged” process in which they sell a portion of their business over an 8- to 12-year time frame, which provides a number of benefits.
For the principal owner, the value of his stake in his firm can increase as the firm grows in value over that time; for the younger generation of owners, their borrowed capital allows them to acquire an increasing portion of the firm over time.
Moreover, because CPG is lending money to its partner firms, Schwartz points out, “we want to make it easier” for partnership firms to succeed.” CPG has already made $10 million in loans to its partner firms, on which CPG charges around 5% interest. CPG also has an “override” on each partner’s business. “In effect we have bought a piece of their business,” Schwartz says, “it’s perpetual.”
Since CPG is a partnership (with its own broker-dealer and RIA), any loans from CPG and the override also benefit the partners over time, while not paying for the nonfinancial assistance they get from CPG. “We don’t buy stock or take control” in the partner firms, Schwartz points out, adding that each partnership deal is customized.
“Cambridge is a relatively modest stockholder in CPG,” Schwartz said, along with himself, but the now 169 partners own about 70% of the company.
Which RIAs might be attracted to CPG?
Schwartz said that his original assumption was that smaller RIAs — with $100 million to $300 million in AUM — would be “our niche,” partly because there are so many solo-advisor RIAs of that size, because that was the size of the Cambridge Investment Research reps who joined CPG and because “the rollups don’t want those firms.”
However, of CPG’s “top 10 prospects” among RIA firms, “half have a billion or more” in AUM, Schwartz says, while two have between $2 billion and $2.5 billion in AUM.
In talking to independent RIAs, Schwartz came to see the business opportunity for CPG. “There are things they need that we’re well positioned to provide: multigenerational planning, succession planning and acquisition planning but without taking away what they cherish most: their independence.”
Then there’s the bigger picture for CPG: “As long as we keep the rep, we get an override on their business, and we get the next gen to stay with us over the next 25 years; we continue to grow and succeed.”
Don Gould founded Gould Asset Management in 1999 following stays at Franklin Templeton and Huntington Funds. With nine full-time staffers, the RIA firm has 250 clients throughout California and the U.S.
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